Demand for mortgages in the United States skyrocketed over the past two years due to low-interest rates that have made them attractive to consumers. After remaining low for some time, mortgage rates have been on the rise since the beginning of 2022, reaching their highest levels since the early days of the pandemic, with the average rate on 30-year mortgages hitting 3.9% last week. Rates are reacting to anticipated tightening monetary policy and interest-rate hikes this year.
Although a rise in rates will affect refinance activity, the mortgage industry is likely to continue to see significant demand from the purchase market. According to a report from the Mortgage Bankers Association, the industry is expected to originate more than $2.50 trillion for each of the coming three years (2022 - 2024), which is at least 40% higher than average annual originations between 2010 and 2019.
Given this backdrop, we think it could be wise to scoop up mortgage stocks Essent Group Ltd. (ESNT), Encore Capital Group, Inc. (ECPG), and LendingTree, Inc. (TREE) on the dip. These stocks are outperforming the broader S&P 500 so far this year.
Essent Group Ltd. (ESNT)
ESNT in Hamilton, Bermuda, provides private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its mortgage insurance products include primary, pool, and master policies.
In November 2021, Essent Guaranty, Inc., a nationwide mortgage insurance provider and a subsidiary of ESNT, announced a partnership with OpenClose, a leading fintech provider and developer of enterprise-level mortgage lending software to offer Essent’s products and services through their LenderAssist™ loan origination system (LOS). The collaboration is expected to enhance ESNT’s capabilities and create efficiencies for mutual customers.
Last December, ESNT announced that it had amended its credit facility with an increase to $825 million from $625 million, with a December 2026 maturity. The company expects this amendment to enhance its liquidity position and add to its financial flexibility.
For the fourth quarter, ended December 31, 2021, ESNT’s total revenues increased 3.9% year-over-year to $256.92 million, while its net investment income increased 12.9% year-over-year to $23.66 million. Its net income stood at $180.99 million, up 46.4% from its year-ago value. And the company’s EPS increased 49.1% year-over-year to $1.64.
The $1.45 consensus EPS estimate for its fiscal first quarter (ending March 2022) indicates a 19.8% increase year-over-year. The Street expects the company’s EPS to grow 15.6% per annum over the next five years. Furthermore, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has slumped 2.1% in price to close the last trading session at $46.59. The stock has gained 2.3% year-to-date.
It is no surprise ESNT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ESNT also has a B grade for Momentum. Among the 144 stocks in the Financial Services (Enterprise) industry, it is ranked #14. Click here to view additional Growth, Value, Quality, Sentiment, and Stability.
Encore Capital Group, Inc. (ECPG)
San Diego, Calif.-based ECPG operates as a specialty finance company, providing debt recovery solutions and other related services for consumers across a range of financial assets worldwide.
Last December, the company announced the final results of its tender offer. The company tendered for a total of 4,471,995 shares of common stock. ECPG accepted all shares at $60.00 per share. “After having completed this transaction, we remain well-positioned with leverage near the low-end of our target range and available liquidity to capitalize on our core market opportunities and continue executing our strategy,” said Ashish Masih, Encore’s President, and Chief Executive Officer.
The company’s total revenues increased 2.2% year-over-year to $412.62 million in its fiscal third quarter, ended September 30. Its income from operations rose 17% from the prior-year quarter to $166.65 million. And its net income came in at $83.57 million, indicating a 51.6% increase year-over-year. Its EPS increased 54.7% from its year-ago value to $2.66.
The Street expects the company’s revenues to come in at $1.62 billion for its fiscal year ended December 31, 2021, indicating a 7.8%increase year-over-year. The company’s EPS is expected to increase 40.6% year-over-year to $10.90 in the same period. ECPG has a notable earnings surprise history as it beat the consensus EPS estimates in three out of the trailing four quarters.
The stock declined marginally in price intraday to close yesterday’s trading session at $70.06.
ECPG’s sound fundamentals are reflected in its POWR Ratings. ECPG has an overall B rating, which equates to Buy in our POWR Ratings system. ECPG also has a B grade for Value and Quality. It is ranked #6 in the Financial Services (Enterprise) industry.
In addition to the POWR Ratings grades highlighted, one can see the ECPG’s Growth, Momentum, Stability, and Sentiment ratings here.
LendingTree, Inc. (TREE)
TREE operates an online consumer platform in the United States. The Charlotte, N.C.-based concern operates through three segments: Home; Consumer; and Insurance. The Home segment offers purchase mortgage, refinance mortgage, reverse mortgage, and home equity loans; lines of credit; and real estate brokerage services.
This month, TREE announced Mercury Financial, Avant, and Ally Credit Card (Ollo) as the founding partners of TreeQual, TREE’s automated pre-approval platform that is designed to make it even easier for consumers to achieve their financial goals. “This is a meaningful step towards fulfilling LendingTree’s mission of being the ultimate consumer advocate in financial services,” said Doug Lebda, founder, and CEO of TREE.
TREE’s total revenues increased 35% year-over-year to $297.40 million in its fiscal third quarter ended Sept. 30, 2021. Its adjusted EBITDA rose 88.9% from the prior-year quarter to $41 million, while its adjusted net income came in at $10.30 million, up significantly from its negative$3.40 million year-ago value. The company’s adjusted EPS increased 388.5% year-over-year to $0.75.
Analysts expect TREE’s revenues to increase 16.6% year-over-year to $259.26 million in the quarter ended Dec. 31, 2021. The company’s EPS is expected to increase 76.5% per annum over the next five years. In addition, TREE surpassed the Street’s EPS estimates in each of the trailing four quarters.
Shares of TREE have slumped 32.3% in price over the past six months and 4.4% year-to-date to close yesterday’s trading session at $117.27.
TREE has an A grade for Growth and a B grade for Value. It is ranked #8 of 52 stocks in the Consumer Financial Services industry. To see additional TREE ratings for Stability, Sentiment, Quality, and Momentum, click here.
ESNT shares were trading at $46.58 per share on Wednesday afternoon, down $0.01 (-0.02%). Year-to-date, ESNT has gained 2.31%, versus a -6.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
3 Mortgage Stocks to Consider Buying on the Dip StockNews.com
