HomeStreet (HMST) missed the
mark on the most recent earnings release and has seen estimates
drop substantially over the last six months. It
is a Zacks Rank #5 (Strong Sell).
It is the Bear of the Day.
Mortgage Rates Move Up
Over the last few weeks, interest rates have moved higher and
that has caused rates for mortgages to increase as well. Along
with a light housing inventory, this will keep some buyers on the
sidelines which could hurt the real estate lending business for
HMST.
Company Description
HomeStreet (HMST) is a diversified financial services company
headquartered in Seattle, WA serving consumers and businesses in
the Pacific Northwest, California and Hawaii. The company
operates four primary lines of business: Community Banking,
Single Family Lending, Commercial Real Estate Lending and
Residential Construction Lending. Its principal subsidiaries are
HomeStreet Bank and HomeStreet Capital Corporation.
Earnings History
The most recent quarter was a big miss, with the company
reporting earnings of $0.74 when the Zacks Consensus Estimate was
calling for $0.84. The ten cent negative earnings surprise
translates to a 11.9% miss. The topline also came in $5 million
light, so another miss of 6% on top.
Besides that quarter, things have been mostly good for HMST.
Prior to the earnings miss the company posted four straight
positive earnings surprises.
Small Bank
HomeStreet Bank is a WA state chartered savings bank with a
network of 23 retail bank branches, 28 stand-alone lending
centers and three stand-alone commercial lending centers in
Washington, Oregon, California and Hawaii. Its size may keep
some investors out of it beyond its limited geographical
footprint.
Earnings Estimates Plunge
Estimates for HMST have done nothing but fall all year. The 2013 Zacks Consensus Estimate was $5.40 at the start of the year and that quickly dropped to $5.07 in the following month. By May the number was down to $3.57 and it is currently at $2.93. That is a significant decrease in just a little over 6 months.
The 2014 Zacks Consensus Estimate has also been moving lower. It stood at $5.43 in February, but had fallen to $4.12 in May and is currently $3.73.
The question becomes when will estimates stop falling?
Valuation
The valuation picture HMST looks really, really good. That is if
can get past the whole negative earnings growth expectations in
2013. The PE multiples of 4.6x trailing and 7.7x forward would
make value investors get interested, as would a 1.2x book
multiple. But investors need to look past low multiples and
understand why they are low before making an investment in a
stock like HMST.
The Chart
The year to date chart is one that will turn the stomachs of most investors. The limited footprint of the company can expose it to specific weaknesses that may be seen just in the Pacific Northwest, and that is a risk that many may not want to see. In the more immediate term, the increased rates may help net interest margin, but those rates are likely to change soon.
Brian Bolan is a Stock Strategist
for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader
a trading service that focuses on small cap stocks and also
carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
Follow Brian Bolan on twitter at
@BBolan1
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