Shares of Mr. Cooper Group rose 3.8% on Monday to close at $36.93 after the home loan servicer announced the sale of its title business, which operates under the brand name Title365, to Blend Labs, Inc, a digital lending software provider. The deal is worth $500 million, including $450 million in cash and a retained interest of 9.9%, subject to certain adjustments.
As per the terms of the agreement, all cash generated after the deal’s announcement until the closing will be retained by Title365 for the benefit of the acquirer. Notably, this cash is not likely to be included in Mr. Cooper Group’s (COOP) second-quarter earnings. The transaction, which awaits regulatory approvals, is anticipated to close in the second quarter of this year.
Upon closure of the deal, the company anticipates an after-tax gain of $350 million and Mr. Cooper Group is likely to receive cash proceeds net of transaction costs and cash taxes of $400 million. (See Mr. Cooper Group stock analysis on TipRanks)
Mr. Cooper Group CEO Jay Bray said, “This decision follows a comprehensive strategic review in which we determined that Title365 would gain greater investor credit as part of a company like Blend, where it will have a significant strategic impact.”
“This decision allows Mr. Cooper Group to focus on the growth and profitability potential within our core business of servicing and originations,” Bray added.
On March 4, Wedbush analyst Henry Coffey raised the stock’s price target to $43 (16.4% upside potential) from $34 and reiterated a Buy rating “to reflect the benefit of what should be a $3.5T mortgage market in 2021, as well as the expected contribution from EBO activity.”
“As this second item wanes,” Coffey would expect “to see it offset by rising levels of contribution from the servicing business.”
Mr. Cooper Group shares have exploded 69% over the past six months, while the stock still scores a Strong Buy consensus rating based on 3 unanimous Buys. That’s alongside an average analyst price target of $43.33, which implies 17.3% upside potential to current levels.
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