Stonegate Mortgage: Zacks’ Bear of the Day Play

Stonegate Mortgage (SGMSnapshot Report) has seen its estimates fall due to several factors; Q4 14 earnings and revenues missed the Zacks Consensus Estimates, revenues dropped 58% quarter over quarter, revenues dropped 39% year over year, a heavy cost base, and high difficulty to grow earnings.

This Zacks Rank #5 (Strong Sell) company operates as a non-bank integrated mortgage company focused on originating, financing, and servicing Agency and Non-Agency residential mortgage loans.

According to the company, “lower interest rates and a flattening in the yield curve resulted in lower GAAP revenue primarily in interest income, payoffs and principal amortizations of MSR’s and fair market value adjustments.” Due to these factors the company saw revenues significantly decrease quarter over quarter and year over year.  So with the FED looking at June the earliest for an interest rate hike, the next few months will continue to be difficult for Stonegate Mortgage.

The table below shows the Price and Consensus estimates for Stonegate Mortgage.  As you can see expectations have declined, and are not expected to rebound in the near term.

Declining Estimates

Over the past 30 days, earnings estimates for Stonegate have dropped significantly for Q1 15, Q2 15, and FY 15; Q1 15 decreased from $0.30 to $0.10, Q2 15 dropped from $0.37 to $0.19, and FY 15 fell from $1.53 to $0.79. These declining estimates indicate the next few quarters are going to be difficult for Stonegate Mortgage.

Bottom Line

The low interest rate environment, and flattening in the yield curve have negatively impacted Stonegate in the back-half of 2014, and into 2015. Further, with interest rates holding at their current low levels until at the earliest June, it will be a difficult Q1 15 for the company.

If you are inclined to invest in the Financial-Mortgage and Real estate Services segment, you would be best served by looking into Essent Group (ESNTSnapshot Report), or Federal Agriculture Mortgage Corp (AGM).  Both these companies carry a Zacks Rank #1 (Strong Buy).

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