Pennymac Financial shares fall on earnings miss

Investing.com -- Pennymac Financial Services (NYSE: PFSI) stock declined 8% following the release of their fourth-quarter earnings, which fell short of investor expectations. The mortgage lender reported net income attributable to common shareholders of $36.1 million, or $0.41 per diluted share, which was below the previous year’s figure of $157.8 million, or $1.63 per diluted share.

The company’s performance was influenced by a significant decrease in net investment income, which dropped to $107.9 million from $429.0 million year-over-year (YoY). Despite a 10% annualized return on average common equity, driven by strong income excluding market-driven value changes, the overall financial results for the full year were less robust than in 2023, with net income decreasing from $199.7 million to $161.0 million.

In the fourth quarter, Pennymac’s correspondent loan production volumes on its account totaled $3.5 billion in unpaid principal balance (UPB), a 41% decline from the previous quarter. This was partially offset by a 41% increase from the fourth quarter of 2023 due to higher overall volumes, which led to the creation of $60 million in new mortgage servicing rights (MSRs).

Piper Sandler analyst Crispin Love commented on the results, stating, "PennyMac posted an operating miss primarily driven by higher expenses, partially offset by higher servicing fees." Love also noted the company’s lowered return on equity (ROE) outlook, which was adjusted to "mid-to-high teens" from "high-teens to low-twenties" due to the current rate environment. Despite the lowered outlook and operating miss, Love highlighted the company’s 16% operating ROEs as a positive indicator of its balanced model of origination and servicing. However, in light of these factors, Love anticipates that shares will underperform in Friday’s trading session.

The company’s CEO, David Spector, expressed confidence in the firm’s ability to continue delivering attractive risk-adjusted returns in the future, driven by a consistent issuance and investment in private label securitizations, alongside a seasoned portfolio of MSRs and credit risk transfer (CRT) assets.

Investors reacted negatively to the earnings release and the adjusted ROE outlook, leading to the stock’s downturn in the trading session.

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