Pennymac, Rocket, UWM: What analysts expect in Q4 earnings

Fourth-quarter results for nonbank mortgage lenders should highlight differences in business models, balance sheets and strategic bets as lenders position themselves for growth in a still-uneven housing market, analysts say.

From PennyMac's perceived valuation gap to Rocket's acquisition-driven quarter and United Wholesale Mortgage's steady volume gains, analysts see diverging paths among the largest players. LoanDepot, meanwhile, is expected to remain focused on returning to profitability after several quarters in the red.

Is PennyMac undervalued?

Pennymac will report its fourth quarter earnings Thursday, the first of the large nonbank lenders to do so.  

Some analysts interviewed for this story said the company's balanced business channels and stable cash flows make it the most undervalued of the public nonbank mortgage lenders.

"They continue to be undervalued by the market," said Matthew Hurwit, an equity research analyst at Jefferies, "because their business model is much more stable in terms of cash flows than people give them credit for, so the multiple that the stock is trading at now is a few turns below where it probably should be."

S&P Capital IQ Pro currently lists Pennymac on the buy side of its sentiment analysis. The platform also has the company's consensus earnings per share pinned at $3.23, below the third quarter's $3.43 mark but well above the same quarter a year prior at $2.04. Pennymac's EPS has surpassed expectations in each of the last two quarters as well.

Hurwit pegged Pennymac's EPS at $3.26, and expects more than 20% growth year over year with $43.5 billion in total rate lock volume. He also expects a gain-on-sale margin of 81 basis points.

Doug Harter, mortgage finance analyst at UBS Investment Bank, does not view Pennymac as highly, with a neutral stock evaluation and $39.8 billion volume projection, but he still recognizes its EPS upside, estimating a core EPS of $3.59, and stock appeal.

"[It's] a significant discount to Rocket and [United Wholesale Mortgage]," Harter said. "People who think Rocket may be fully priced might look to Pennymac as a cheaper way to play."

Pennymac is also well positioned in the market, avoiding the tension between Rocket and UWM, Hurwit said.

"UWM and Rocket are basically arch rivals and brokers often will choose to work with one or the other," he said. "But ... they still need to have other originators that they can offer to their clients. So PennyMac is taking share by positioning themselves as the number two."

Rocket's quarter defined by another acquisition

Rocket's acquisition of Mr. Cooper was made official in October, which will put it in the red again based on generally accepted accounting principles.

But the acquisitions of Mr. Cooper and Redfin, which was finalized in the third quarter, should ultimately push Rocket's total revenue up a significant amount.

For the fourth quarter, S&P estimates $0.08 normalized EPS and $2.2 billion in revenue, up from $1.8 billion in the third quarter and the fourth quarter of 2024. Mark DeVries, a senior research analyst at Deutsche Bank, and Harter also pinned Rocket at $0.08 EPS, while they differed in their total originations projections, with DeVries at $39.5 billion and Harter at $46.6 billion, each up from the $23.6 billion a year prior. 

On a GAAP basis, S&P and Hurwit each have Rocket improving from last quarters -$0.06 to -$0.01 and -$0.02, respectively. Hurwit also anticipates a gain-on-sale margin of 270 basis points.

The acquisitions are expected to improve Rocket's origination and servicing businesses, with Mr. Cooper alone projected to add $9.8 billion to the total volume in the fourth quarter, DeVries said.

Prior to the moves, Rocket set out to double its market share in purchase mortgages from 4% to 8% by 2027, and while most analysts expect them to hit that goal, DeVries is more confident in the company's ability to hit its 20% refinance target because of the Mr. Cooper addition.

More of the same for UWM

The fourth quarter should boast more of the same for United Wholesale Mortgage after the company recorded its largest quarterly originations volume since 2021 in the third quarter, analysts said.

S&P marked its estimated EPS at $0.09, while Hurwit and DeVries are slightly lower at $0.08 and Harter is bullish at $0.11 EPS. DeVries and Harter each expect origination volume to increase from the third quarter to $47.5 billion and $50 billion, respectively.

Kevin Heal, senior analyst at Argus Research Company, does not expect anything dramatic, but believes the lower rates boosted UWM's refinance production. DeVries has UWM's origination volume nearly split evenly between purchases and refinances, a notable uptick from the 39.6% share refinances held in the third quarter.

Hurwit expects UWM's gain-on-sale margin to increase to 121 basis points as well.

One issue Heal will be examining is UWM's balance between origination and servicing income, as CEO Mat Ishbia said in the third quarter earnings call that he doesn't care about servicing valuations.

Will LoanDepot turn a profit?

LoanDepot has been in the negative for the last four quarters, but expects to turn a profit soon. 

Harter is not sure that will come in the fourth quarter. He pinned the company's EPS at -$0.03, a smidge below S&P's estimate of -$0.02. But Harter does anticipate origination volume to improve on a quarterly and yearly basis and hit $7.8 billion.

Founder Anthony Hsieh returned as CEO earlier this year and should help turn things around soon, balancing growth with a return to profit, Harter said.