Ocwen Financial Relatively Sound
Ocwen Financial Corporation (OCN) will release its 2Q08 earnings results on August 5, 2008, with a conference call scheduled on the same day at 11.00 am ET. 1Q08 earnings of $5.9 million or $0.09 per share were slightly short of estimates. The revenues increased 6.6% sequentially due to higher process management fees and servicing fees while the operating expenses were down 15.9%.
The company was also able to moderate the rise in delinquencies during the quarter but we suspect that the continued deterioration in the housing market, leading to decline in originations and increase in borrower defaults, coupled with the liquidity issues, will continue to challenge OCN in the near-to-medium term.
OCN currently trades at 9.4 times the consensus forward estimate, a 39% discount to the peer group median. It also should be noted that the peer group is not a perfect fit, and we see no pure-play comparison for OCN. Also, the peer group has shrunk recently due to mergers and other issues. On a price-to-book basis, the shares trade at an 80% discount to the peer median, versus 81% discount in May 2008.
Against the existing peer group, relative pricing continues to look attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. OCN's PEG ratio is now 0.78, a 32% discount to the 1.15 median for the peer group. On a price-to-book basis, the 80% discount also looks good given an ROE of 71% below median.
Ahead of the 2Q08 earnings results, we are maintaining our FY08 and FY09 estimates. Our new six-month price target of $6.20 per share equates to 11.1 times our earnings estimate for FY08. With no dividend to supplement the return, this equates to an expected total return of 5.1% over the period. We are thus maintaining our Hold rating on the shares.
Newmont Mining Seeks Resources
We rate the shares of Newmont Mining Corp. (NEM) -- one of the world's largest unhedged gold producers -- a Hold. Gold prices are skyrocketing due to higher demand, U.S. trade/budget/currency issues and global instability. Declining grades are pushing up mining costs prompting the company to cut costs. We set a target of $47.50 due to high valuation and declining grade quality, despite the improving fundamentals.
For the second quarter, Newmont's net income from continuing operations were $0.61 per diluted share, compared to net loss from continuing operations of $0.89 per diluted share in the prior year quarter.
The company's new 200 Mw Nevada electricity plant should save at least $70-$80 million annually. Electricity initiatives in Ghana should save an additional $50 million. Newmont also plans to focus on completing the construction of Boddington in Australia.
