How Will PHH (PHH) Stock React To Its $1.4 Billion Fleet Management Services Business Sale?

NEW YORK (TheStreet) -- PHH Corp. (PHH) announced today that as of July 1, it completed the sale of its fleet management services business, known as PHH Arval, to Element Financial Corp. (ELEEF) for a $1.4 billion cash consideration.

The company is an outsource provider of mortgage and fleet management services.

PHH said the completion of the sale gives the company the flexibility to return significant capital to its shareholders, reduce unsecured debt, re-engineer its mortgage business, and find opportunities to increase profitability.

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The deal is expected to generate $821 million in net proceeds, after taxes and transaction expenses, PHH said.

Shares of PHH Corp. closed lower by -0.47% to $23.28 on Monday.

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 several weaknesses, 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, weak operating cash flow 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.
  • Net operating cash flow has decreased to $471.00 million or 43.45% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • 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 109.7% in earnings (-$0.19 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.
  • You can view the full analysis from the report here: PHH Ratings Report
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