FBR Raises PHH EPS Estimates on MSR Valuation

An expected fourth quarter 2009 write-up of $80 million in the mortgage servicing rights asset of PHH Corp., Mt. Laurel, N.J., is leading FBR Capital Markets analysts to increase their earnings per share projections at the company. The report, authored by Paul J. Miller Jr., William Wallace and Jessica Halenda, said PHH should have EPS of $0.86 for the fourth quarter, compared with their original estimate of $0.79. The anticipated write-up in MSR valuation is because of rising interest rates in recent weeks. FBR Capital Markets noted that PHH is the rare mortgage banking company that does not hedge its mortgage servicing rights portfolio, which can lead to volatility in earnings. In the third quarter, PHH wrote down the MSR asset by $89 million. "We would note that there are a lot of moving parts to MSR valuation, and, in our view, we believe that the stock will be positively impacted if PHH posts a fourth quarter headline number in the $0.60 to $0.90 range. We reiterate our Outperform rating on PHH shares, which continue to trade at an attractive discount to tangible book value," the analysts said.