Will This Downgrade Hurt Nationstar Mortgage Holdings (NSM) Stock Friday?

NEW YORK (TheStreet) -- Shares of Nationstar Mortgage Holdings Inc. (NSM) are lower -0.92% to $31.40 in pre-market trading on Friday following a ratings downgrade to "hold" from "buy" at Jefferies Group (JEF).

The firm said it lowered its rating on the non-bank residential mortgage services company due to lower servicing margins and slow UPB growth.

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Separately, TheStreet Ratings team rates NATIONSTAR MORTGAGE HOLDINGS as a Sell with a ratings score of E+. TheStreet Ratings Team has this to say about their recommendation:

"We rate NATIONSTAR MORTGAGE HOLDINGS (NSM) a SELL. This is based on a variety of negative investment measures, which should drive this stock to significantly underperform the majority of stocks that we rate. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Thrifts & Mortgage Finance industry. The net income has significantly decreased by 62.2% when compared to the same quarter one year ago, falling from $62.62 million to $23.68 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.72%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 61.42% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • 37.47% is the gross profit margin for NATIONSTAR MORTGAGE HOLDINGS which we consider to be strong. Regardless of NSM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NSM's net profit margin of 4.61% is significantly lower than the industry average.
  • NATIONSTAR MORTGAGE HOLDINGS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NATIONSTAR MORTGAGE HOLDINGS increased its bottom line by earning $2.41 versus $2.31 in the prior year. This year, the market expects an improvement in earnings ($3.80 versus $2.41).
  • The revenue growth came in higher than the industry average of 2.9%. Since the same quarter one year prior, revenues rose by 11.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • You can view the full analysis from the report here: NSM Ratings Report
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