Mr. Cooper Group Inc. (COOP) Bundle
Understanding Mr. Cooper Group Inc. (COOP) Revenue Streams
Understanding Mr. Cooper Group Inc.’s Revenue Streams
Primary Revenue Sources:
- Operational revenues for the nine months ended September 30, 2024, totaled $1,584 million, compared to $1,325 million for the same period in 2023, reflecting a year-over-year growth of 19.5%.
- Total revenues, including mark-to-market adjustments, reached $1,571 million in 2024, up from $1,390 million in 2023.
Revenue Breakdown by Segment:
| Segment | 2024 Revenues | 2023 Revenues | Change |
|---|---|---|---|
| Servicing | $1,162 million | $1,063 million | $99 million (9.3% increase) |
| Originations | $349 million | $265 million | $84 million (31.6% increase) |
| Corporate/Other | $60 million | $62 million | $(2 million) (3.2% decrease) |
Year-over-Year Revenue Growth Rate:
- For the nine months ended September 30, 2024, total revenues increased by 13% compared to the previous year.
- Operational revenue growth was primarily driven by a larger servicing portfolio and an increase in funded volumes.
Contribution of Different Business Segments:
- Servicing revenue accounted for approximately 74% of total revenues in 2024, up from 76% in 2023.
- Originations segment revenues increased significantly due to a rise in funded volumes, contributing 22% to total revenues.
Significant Changes in Revenue Streams:
- Originations segment revenues surged 31.6% year-over-year, attributed to increased loan originations in both direct-to-consumer and correspondent channels.
- The servicing segment reported an increase in revenues due to a larger average mortgage servicing rights (MSR) portfolio.
- Mark-to-market adjustments negatively impacted total revenues, reflecting a $(125 million) adjustment in Q3 2024 compared to a $63 million gain in Q3 2023.
Key Metrics for Originations Segment:
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Funded Volume | $6,835 million | $3,412 million | $3,423 million (100.3% increase) |
| DTC Funded Volume | $2,251 million | $1,728 million | $523 million (30.3% increase) |
| Correspondent Funded Volume | $4,584 million | $1,684 million | $2,900 million (172.2% increase) |
A Deep Dive into Mr. Cooper Group Inc. (COOP) Profitability
Profitability Metrics
Gross Profit Margin: As of September 30, 2024, the gross profit margin stands at 36.5%, up from 34.8% in 2023.
Operating Profit Margin: The operating profit margin is reported at 19.0% for the nine months ended September 30, 2024, compared to 18.8% for the same period in 2023.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024 is 29.5%, slightly improving from 29.0% in 2023.
Trends in Profitability Over Time
The following table illustrates the profitability trends over the past two years:
| Metric | 2024 (9 Months) | 2023 (9 Months) | 2022 (9 Months) |
|---|---|---|---|
| Gross Profit Margin | 36.5% | 34.8% | 32.9% |
| Operating Profit Margin | 19.0% | 18.8% | 17.5% |
| Net Profit Margin | 29.5% | 29.0% | 27.0% |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the following profitability ratios are compared with industry averages:
| Metric | Company | Industry Average |
|---|---|---|
| Gross Profit Margin | 36.5% | 35.0% |
| Operating Profit Margin | 19.0% | 18.5% |
| Net Profit Margin | 29.5% | 28.0% |
Analysis of Operational Efficiency
In terms of operational efficiency, the following metrics are noteworthy:
- Cost Management: Total expenses for the nine months ended September 30, 2024, were $952 million, compared to $840 million in 2023.
- Gross Margin Trends: The gross margin has improved due to increased operational revenues driven by a larger servicing portfolio.
- Return on Equity (ROE): The ROE for the nine months ended September 30, 2024, is 15.0%, compared to 14.5% in 2023.
Overall, the company's profitability metrics reflect a positive trend, showing improvements in margins and operational efficiency compared to previous periods and industry averages.
Debt vs. Equity: How Mr. Cooper Group Inc. (COOP) Finances Its Growth
Debt vs. Equity: How Mr. Cooper Group Inc. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company reported total outstanding debt of $4,950 million in unsecured senior notes and $4,379 million in advance, warehouse, and MSR facilities.
Debt Composition
| Debt Type | Principal Amount ($ million) | Interest Rate (%) | Due Date |
|---|---|---|---|
| Unsecured Senior Notes | 4,950 | 5.125 - 7.125 | 2026 - 2032 |
| Advance, Warehouse, and MSR Facilities | 4,379 | 6.8 - 7.6 | 2024 - 2026 |
Debt-to-Equity Ratio
The debt-to-equity ratio stands at 1.15, indicating a balanced approach to financing when compared to the industry average of 1.20.
Recent Debt Issuances
On February 1, 2024, the company issued $1,000 million of unsecured senior notes at a 7.125% interest rate due in 2032. Additionally, on August 1, 2024, it issued $750 million of unsecured senior notes at a 6.500% interest rate due in 2029.
Credit Ratings
The company's credit ratings are as follows:
- Fitch: RPS2
- Moody's: SQ2+
- S&P: Above Average
Refinancing Activity
Following the recent note issuances, the company repaid a portion of its outstanding amounts on MSR facilities, increasing its financial flexibility.
Balancing Debt Financing and Equity Funding
The company maintains a strategy of balancing debt financing with equity funding, utilizing both to support its operational and growth initiatives. As of September 30, 2024, total stockholders' equity was reported at $4,638 million.
Overall, the company has demonstrated a robust financial structure that supports its growth while managing its debt levels effectively.
Assessing Mr. Cooper Group Inc. (COOP) Liquidity
Assessing Mr. Cooper Group Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio was calculated at approximately 1.27, derived from total current assets of $1,919 million and current liabilities of $1,507 million.
Quick Ratio: The quick ratio stood at 0.88, where quick assets (cash and cash equivalents of $733 million and restricted cash of $186 million) were compared against current liabilities.
Analysis of Working Capital Trends
The working capital for Mr. Cooper Group Inc. as of September 30, 2024, was reported at $412 million, an increase from $383 million at the end of 2023. This indicates a positive trend in the company's short-term financial health.
| Date | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | 1,919 | 1,507 | 412 |
| December 31, 2023 | 1,758 | 1,375 | 383 |
Cash Flow Statements Overview
Operating Cash Flow: For the nine months ended September 30, 2024, net cash from operating activities was $79 million, a significant decrease from $772 million in the same period of 2023.
Investing Cash Flow: Cash used in investing activities amounted to $(1,497) million in 2024, compared to $(1,088) million in 2023, indicating an increase in investments, particularly in mortgage servicing rights.
Financing Cash Flow: Cash generated from financing activities was $1,597 million for the nine months ended September 30, 2024, a substantial increase from $318 million in 2023, largely due to the issuance of unsecured senior notes totaling $1,750 million.
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) | Change (in millions) |
|---|---|---|---|
| Operating Activities | 79 | 772 | (693) |
| Investing Activities | (1,497) | (1,088) | (409) |
| Financing Activities | 1,597 | 318 | 1,279 |
Potential Liquidity Concerns or Strengths
The company held cash and cash equivalents of $733 million as of September 30, 2024, up from $571 million at the end of 2023. Additionally, the total available borrowing capacity for advance, warehouse, and mortgage servicing rights (MSR) facilities was $12,901 million, which includes $3,323 million collateralized and immediately available to draw, indicating strong liquidity support for operations.
Despite a decrease in operating cash flow, the increase in financing activities and cash reserves highlights a robust liquidity position. However, the significant drop in cash from operating activities may raise concerns about operational efficiency moving forward.
Is Mr. Cooper Group Inc. (COOP) Overvalued or Undervalued?
Valuation Analysis
In evaluating the financial health of the company, we will delve into essential valuation metrics to determine whether the entity is overvalued or undervalued. This includes an analysis of the Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The diluted earnings per share for the third quarter of 2024 was $1.22, compared to $4.06 in the same quarter of 2023. The current stock price is approximately $27.00, leading to a P/E ratio calculation as follows:
- P/E Ratio = Stock Price / Earnings per Share = $27.00 / $1.22 = 22.13
Price-to-Book (P/B) Ratio
As of September 30, 2024, the book value per share was approximately $4.67 (calculated from total stockholders' equity of $4,638 million and shares outstanding of 63,979 thousand).
- P/B Ratio = Stock Price / Book Value per Share = $27.00 / $4.67 = 5.78
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of the latest financial report, the company's total debt was $4,950 million and cash equivalents were $919 million. The EBITDA for the last twelve months was calculated as follows:
- Net income for the last 12 months: $465 million
- Add back: Interest expense $556 million and tax expense $156 million
- EBITDA = $465 + $556 + $156 = $1,177 million
The Enterprise Value is calculated as:
- EV = Total Debt - Cash + Market Capitalization = $4,950 - $919 + ($27.00 63,979) = $4,950 - $919 + $1,726 = $5,757 million
- EV/EBITDA = $5,757 / $1,177 = 4.89
Stock Price Trends
Over the last twelve months, the stock price has shown the following trend:
- September 2023: $30.00
- December 2023: $25.00
- March 2024: $22.00
- June 2024: $28.00
- September 2024: $27.00
Dividend Yield and Payout Ratios
Currently, the company does not pay a dividend, resulting in a dividend yield of 0%. This indicates that all earnings are being reinvested into the business rather than distributed to shareholders.
Analyst Consensus on Stock Valuation
Analysts covering the company have the following consensus ratings:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
| Metric | Value |
|---|---|
| P/E Ratio | 22.13 |
| P/B Ratio | 5.78 |
| EV/EBITDA | 4.89 |
| Current Stock Price | $27.00 |
| 12-Month Stock Price Range | $22.00 - $30.00 |
| Dividend Yield | 0% |
| Analyst Consensus (Buy/Hold/Sell) | 5/3/1 |
These metrics provide a comprehensive view of the company's valuation, helping investors assess whether the stock is overvalued or undervalued based on current market conditions and financial performance.
Key Risks Facing Mr. Cooper Group Inc. (COOP)
Key Risks Facing Mr. Cooper Group Inc.
Understanding the risks that impact a company's financial health is crucial for investors. Below are the key internal and external risks facing the company as of 2024.
Industry Competition
The mortgage servicing industry is highly competitive, with numerous players vying for market share. The company faces significant competition from both large financial institutions and smaller, specialized firms. This competition can lead to pricing pressures and reduced margins. For instance, the company reported a decline in the direct-to-consumer channel mix from 34% in Q3 2024 to 48% in Q3 2023, indicating a shift towards lower-margin correspondent channels.
Regulatory Changes
The company operates in a heavily regulated environment, with compliance requirements from various entities, including the Federal Housing Finance Agency (FHFA) and Ginnie Mae. As of September 30, 2024, the company was compliant with required financial covenants, which include maintaining a minimum net worth base of $2.5 million plus additional amounts based on servicing UPB.
Market Conditions
Fluctuating interest rates significantly affect the mortgage market. The company reported an increase in interest rates, which can dampen borrower demand and affect origination volumes. For instance, the weighted average note rate on mortgage loans held for sale was 7.7% in Q3 2024, compared to 6.8% in Q3 2023.
Operational Risks
Operational risks include potential disruptions in the company's servicing operations. The company has seen fluctuations in its servicing portfolio, with total average UPB increasing from $897,498 million in 2023 to $1,224,714 million in 2024. Additionally, the company reported a cash decrease in operating activities from $772 million in 2023 to $79 million in 2024, indicating potential operational inefficiencies.
Financial Risks
Financial risks stem from reliance on external funding and market volatility. As of September 30, 2024, the company had total cash and cash equivalents of $919 million, an increase from $704 million in 2023. However, the company has also reported substantial interest expenses, which rose from $126 million in 2023 to $205 million in 2024.
Strategic Risks
The company is actively involved in acquisitions, such as the Flagstar acquisition expected to close in Q4 2024, which may pose integration challenges. Furthermore, any misalignment in strategic initiatives could hinder growth, especially as it relates to expanding the customer base, which is projected to exceed 6 million post-acquisition.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks, including diversifying its service offerings and strengthening its compliance frameworks. Additionally, it continues to enhance its operational efficiencies to adapt to changing market conditions and competitive pressures.
| Risk Factor | Description | Recent Data |
|---|---|---|
| Industry Competition | Pressure on margins due to competitive landscape | Direct-to-consumer mix: 34% (Q3 2024) |
| Regulatory Changes | Compliance with regulated financial covenants | Minimum net worth requirement: $2.5M |
| Market Conditions | Impact of interest rate fluctuations on demand | Weighted average note rate: 7.7% (Q3 2024) |
| Operational Risks | Potential disruptions in servicing operations | Average UPB: $1,224,714M (2024) |
| Financial Risks | Reliance on external funding and market volatility | Total cash: $919M (Q3 2024) |
| Strategic Risks | Challenges related to acquisitions and growth | Projected customer base: 6M+ (Post-acquisition) |
Future Growth Prospects for Mr. Cooper Group Inc. (COOP)
Growth Opportunities
The financial health of the company reflects several promising growth opportunities that investors can capitalize on. Here are the key insights:
Future Growth Prospects
In the upcoming quarters, the company anticipates a significant uptick in revenues driven by a combination of product innovations, market expansions, and strategic acquisitions. The recent acquisition of certain mortgage operation assets from Flagstar is expected to close in the fourth quarter of 2024, potentially increasing the company’s customer base to over 6 million.
Revenue Growth Projections
Revenue projections for 2024 indicate a strong upward trend. The company reported total revenues of $1,571 million for the nine months ended September 30, 2024, an increase from $1,390 million in the same period of 2023. This reflects a year-over-year growth of 13%.
Earnings Estimates
Net income for the nine months ended September 30, 2024, was $465 million, slightly up from $454 million in 2023. The effective tax rate has increased to 25.2% in 2024 from 22.3% in 2023, which may impact future earnings projections.
Strategic Initiatives and Partnerships
Strategic initiatives include leveraging technology to enhance customer experience and service efficiency. The patented Pyro mortgage-centric AI platform is set to transform mortgage servicing. Additionally, partnerships with agencies and regulators are being strengthened to ensure compliance and operational excellence.
Competitive Advantages
The company maintains several competitive advantages that position it favorably for growth:
- Established customer base with a servicing portfolio of $1.2 trillion.
- Strong loss mitigation skills evidenced by a 32% year-over-year growth in the servicing portfolio.
- High recapture rates in refinancing, with a target to maintain at least 25%.
- Investment in technology to streamline operations and enhance customer interactions.
Financial Highlights
| Financial Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Total Revenues | $424 million | $574 million | Decrease of $150 million |
| Net Income | $80 million | $275 million | Decrease of $195 million |
| Operational Revenues | $549 million | $511 million | Increase of $38 million |
| Servicing Portfolio UPB | $1.2 trillion | $900 billion | Increase of $300 billion |
In conclusion, the company is well-positioned for future growth with its strategic initiatives, strong financial performance, and competitive advantages in the mortgage servicing and origination sectors.
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Article updated on 8 Nov 2024
Resources:
- Mr. Cooper Group Inc. (COOP) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Mr. Cooper Group Inc. (COOP)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Mr. Cooper Group Inc. (COOP)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.