Critical Analysis: Ocwen (OCN) & Nationstar Mortgage (NSM)

Nationstar Mortgage (NYSE: NSM) and Ocwen (NYSE:OCN) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their profitability, institutional ownership, earnings, valuation, dividends, analyst recommendations and risk.

Profitability

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This table compares Nationstar Mortgage and Ocwen’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Nationstar Mortgage 1.82% 9.24% 0.85%
Ocwen -10.71% -20.31% -1.47%

Institutional and Insider Ownership

98.8% of Nationstar Mortgage shares are owned by institutional investors. Comparatively, 52.2% of Ocwen shares are owned by institutional investors. 0.8% of Nationstar Mortgage shares are owned by company insiders. Comparatively, 2.4% of Ocwen shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Nationstar Mortgage and Ocwen, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Nationstar Mortgage 2 1 2 0 2.00
Ocwen 0 4 0 0 2.00

Nationstar Mortgage currently has a consensus price target of $18.30, suggesting a potential upside of 1.72%. Ocwen has a consensus price target of $3.33, suggesting a potential downside of 21.94%. Given Nationstar Mortgage’s higher possible upside, equities analysts plainly believe Nationstar Mortgage is more favorable than Ocwen.

Earnings & Valuation

This table compares Nationstar Mortgage and Ocwen’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Nationstar Mortgage $1.65 billion 1.07 $30.00 million $1.48 12.16
Ocwen $1.19 billion 0.48 -$127.96 million ($0.94) -4.54

Nationstar Mortgage has higher revenue and earnings than Ocwen. Ocwen is trading at a lower price-to-earnings ratio than Nationstar Mortgage, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

Nationstar Mortgage has a beta of 1.14, meaning that its stock price is 14% more volatile than the S&P 500. Comparatively, Ocwen has a beta of 1.19, meaning that its stock price is 19% more volatile than the S&P 500.

Summary

Nationstar Mortgage beats Ocwen on 11 of the 13 factors compared between the two stocks.

About Nationstar Mortgage

Nationstar Mortgage Holdings Inc. provides servicing, origination and transaction based services principally to single-family residences throughout the United States. The Company operates through three segments: Servicing, Originations and Xome. The Company provides residential loan services in the United States. The Company also operates an integrated residential loan origination platform that is primarily focused on customer retention. Its Xome subsidiary offers an array of complementary services related to the purchase and disposition of residential real estate. It provides non-bank services and residential mortgage services in the United States conducting operations through its Nationstar Mortgage and Champion Mortgage brands. It originates and purchases conventional mortgage loans conforming to the underwriting standards of the government sponsored entities, which it collectively refers to as Agency loans. The Xome segment is a provider of technology and data-enhanced solutions.

About Ocwen

Ocwen Financial Corporation, a financial services holding company, originates and services loans in the United States, the United States Virgin Islands, India, and Philippines. Its Servicing segment provides residential and commercial mortgage loan servicing, special servicing, and asset management services to owners of mortgage loans and foreclosed real estate. This segment's residential servicing portfolio includes conventional, government insured, and non-agency loans. The company's Lending segment originates and purchases conventional and government-insured residential forward and reverse mortgage loans primarily through its correspondent lending arrangements, broker relationships, and directly with mortgage customers. The company also provides short-term inventory-secured loans to independent used car dealers to finance their inventory. Ocwen Financial Corporation was founded in 1988 and is headquartered in West Palm Beach, Florida.

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