NEW YORK (TheStreet) -- PHH Corporation (PHH) shares are rocketing up 18.1% to $25 on Wednesday following a Reuters report that the company was entertaining a takeover bid of its fleet leasing business by Element Financial for $1.35 billion in cash.
The company announced its intention to divest the unit in February and plans to continue with the mortgage production and servicing aspects of its operations.
According to Reuters source, the $1.35 billion purchase price represents 1.6 times the businesses book value.
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TheStreet Ratings team rates PHH CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate PHH CORP (PHH) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk and feeble growth in its earnings per share."
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 Diversified Financial Services industry. The net income has significantly decreased by 180.8% when compared to the same quarter one year ago, falling from $52.00 million to -$42.00 million.
- The debt-to-equity ratio is very high at 3.29 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- PHH CORP 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. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PHH CORP increased its bottom line by earning $1.96 versus $0.45 in the prior year. For the next year, the market is expecting a contraction of 114.3% in earnings (-$0.28 versus $1.96).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Financial Services industry and the overall market on the basis of return on equity, PHH CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The gross profit margin for PHH CORP is rather high; currently it is at 57.48%. Regardless of PHH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PHH's net profit margin of -6.68% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: PHH Ratings Report