FBR Raises Price Target on PHH

FBR Capital Markets has raised its ratings on PHH Corp., Mt. Laurel, N.J. to "outperform" because of improvement in its mortgage banking fundamentals and the change to its management team.The leadership change occurred as a result of a successful proxy challenge by Pennant Capital Management LLC, Chatham, N.J. " With respect to mortgage banking, gain-on-sale margins have held up surprisingly well over the first half of 2009 due to less competition in the mortgage origination space; we expect margins to remain strong throughout the year; however, volumes will be significantly lower in the second half of the year due to higher rates," said analysts Paul J. Miller Jr., William Wallace and Jessica Halenda. The analysts at the Arlington, Va., firm said they expect the new management team, led by acting chief executive George Kilroy, to have a focus on creating shareholder value. FBR has assigned a price target of $23 per share for PHH, up from $13. Their valuation for the mortgage banking business is $15, based on the company's first quarter tangible book value of $22.50. The remaining $7.50 is from the fleet management business.