Zacks Investment Research upgraded shares of Ocwen Financial Corp. (OCN) from UNDERPERFORM to NEUTRAL on February 18, 2014, with a target price of $40.00.
We are upgrading our long-term recommendation on Ocwen to Neutral based on its strategy to grow through acquisitions of MSRs. Though the recent deal to acquire MSRs from Well Fargo has been put on hold, we believe that the company will be able to address the concerns raised by the regulators and complete the deal as per schedule. However, the company's third-quarter earnings substantially lagged the Zacks Consensus Estimate as a result of rise in one-time expenses related to the transition of acquisitions. Nevertheless, top-line growth, strength in balance sheet and decent liquidity were the tailwinds. Despite this, Ocwen remains steadfast on loan modifications and new business acquisitions, market volatility and contraction in subprime MSR market remain causes of concern. Further, the company can still take advantage of other opportunities to acquire servicing portfolios, given its strong balance sheet position. However, the impact from sluggish economic recovery, mounting expenses and new regulations will likely dent its results in the near-term.
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