Shares of UWM Holding (UWMC) declined 5.1% on Monday and slipped another 1.9% in extended trade to closed at $7.32 after the company reported lower-than-expected Q2 results. UWM Holdings engages in underwriting and providing closing documentation for residential mortgage loans.
The company reported earnings of $0.07 per share in the second quarter, which missed analysts’ estimates of $0.08 per share. Markedly, Q2 results were inclusive of a $219.1 million decline in the fair value of mortgage servicing rights.
Revenues of $484.7 million declined 42% year-over-year and lagged the consensus estimates of $668.3 million. The downside can be attributed to a 37% fall in loan production income during the quarter.
Further, originations of $59.2 billion reflected a 90% rise from $31.1 billion a year ago. The company reported a total gain margin of 0.81% in Q2, compared to 2.43% in the same quarter last year. (See UWM Holdings stock charts on TipRanks)
Also, credit quality remained strong in the second quarter. Delinquency rate for 60 days and more came in at 1.19%, while forbearance rates stood at 1.06% as of June 30, 2021. Both compare favorably with the industry averages of 4.37% and 3.76%, respectively.
The Chairman and CEO of UWM Holding, Mat Ishbia, said, “Consumers are increasingly coming to realize that working with a broker is the cheapest, fastest and easiest way to get a mortgage, and as long as the wholesale channel flourishes, so will UWM as the undisputed leader and champion of the channel.”
For the third quarter of 2021, UWM Holding expects production to be in the range of $57 billion to $62 billion. The company expects a gain margin between 0.75% and 1%.
Last month, Jefferies analyst Ryan Carr maintained a Hold rating on the stock and lowered the price target to $8 from $9.50. The new price target implies 7.2% upside potential.
“Lower margins across the wholesale channel have been sparked by competitive price cuts, including UWMC’s “All In” initiative and RKT’s “Broker Freedom Credit”. Our survey data indicate higher-than-expected increase in price competition from brokers and wholesalers, as well as high turnover in broker-wholesaler relationships,” the analyst said.
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus based on 3 Buys and 5 Holds. The average UWM Holding price target of $9 implies 20.6% upside potential.
TipRanks data shows that financial blogger opinions are 100% Bullish on UWMC, compared to the sector average of 70%.
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