NEW YORK (TheStreet) -- Shares of Ocwen Financial Corp. (OCN) are falling by 3.29% to $9.68 in mid-morning trading on Friday, one day after Standard & Poor's Ratings Services placed the struggling mortgage company on watch for a downgrade.
S&P placed Ocwen's residential ratings on CreditWatch negative, The Wall Street Journal reports. The publication added that regulatory and investor scrutiny and some high risk findings following an internal audit is what led S&P to place Ocwen on watch.
This morning Ocwen released a statement responding to the S&P's decision saying it was surprised given the S&P's reasoning as Ocwen believes it has made "significant progress" in resolving past regulatory concerns.
"As previously reported, we are not aware of any unresolved issues with state agencies that would have a material financial impact on the company," Ocwen CEO Ron Faris said in a statement.
"Similarly, we are not aware of, nor anticipating any, material fines, penalties, or settlements and we are not aware of any pending or threatened actions to suspend or revoke any state licenses. We also continue to have frequent and transparent communications with state and federal regulators, Attorneys General, GSE's, and other important stakeholders," Faris continued.
Earlier this week Moody's Investors Service upgraded Ocwen's corporate family, senior bank credit facility, and senior unsecured debt ratings citing an improvement in the company's liquidity, The Journal said.
"We are pleased to see that the strategy we have deployed is working and achieving its objectives," Faris said in the same statement referring to the Moody's upgrade.
Separately, TheStreet Ratings team rates OCWEN FINANCIAL CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate OCWEN FINANCIAL CORP (OCN) a SELL. This is driven by multiple 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 deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself 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 Thrifts & Mortgage Finance industry. The net income has significantly decreased by 43.2% when compared to the same quarter one year ago, falling from $60.50 million to $34.36 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, OCWEN FINANCIAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 70.19%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 37.20% 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.
- OCWEN FINANCIAL CORP's earnings per share declined by 37.2% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, OCWEN FINANCIAL CORP swung to a loss, reporting -$3.83 versus $2.12 in the prior year. This year, the market expects an improvement in earnings ($0.65 versus -$3.83).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: OCN Ratings Report