Key Takeaways
- UWM Holdings shares jumped 19% after it said it expects to have earned $205 million to $220 million in the third quarter, and that it plans to sell more than $1.8 billion of mortgage servicing rights in the fourth quarter.
- Putting that cash and the $400 million rights offering toward paying down debt is the right move, even though it shrinks the servicing business.
- UWM cut its full-year revenue outlook to $3.35 billion to $3.5 billion because the whole industry is making fewer loans.
- Even after the jump, the stock trades far below its five-year average forward P/E, and the final third-quarter report is what to watch next.
UWM Holdings (UWMC) shares are up 19% today after the mortgage lender swung back to a profit in the third quarter and laid out a plan to cut its debt.
The preliminary numbers came out before the open, just before the pricing period for its $400 million rights offering.
Back in the black
For the third quarter, UWM expects:
- Net income of $205 million to $220 million
- Total revenue of $800 million to $825 million
- Loan originations of $33.4 billion, $22.8 billion of them for home purchases
That’s quite a turnaround from the second quarter, when a $603 million loss on interest-rate hedges left UWM with a $452 million net loss.
Not everything improved. UWM now expects full-year revenue of $3.35 billion to $3.5 billion, below its earlier expectations, on lower origination volume across the industry.
Debt comes first
UWM also plans to sell $70 billion to $80 billion of mortgage servicing rights in the fourth quarter for more than $1.8 billion. That cash, plus the $400 million from the rights offering, goes toward paying down non-funding debt.
At Sept. 30, that debt (net of cash) was 1.75x to 1.80x UWM’s $2.8 billion of preferred and common equity, or about $5 billion. So the new money could pay off close to half of it.
The cost is a smaller servicing book: UWM expects to end the year servicing $210 billion to $230 billion of loans, down from about $270 billion at Sept. 30.
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The $2.00 floor
The rights offering’s subscription price is the greater of $2.00 or 85% of the 10-day VWAP through Nov. 9. Even after today’s jump, that floor sits well above the share price, and UWM doesn’t expect much demand from outside investors.
So the backstop will likely do the work. Oaktree can buy any shares left over, and SFS Group, controlled by UWM CEO Mat Ishbia, must buy the rest, so the $400 million comes in either way.
And even after today’s move, UWM trades closer to 7.0x forward earnings, far below its five-year average of 17x…
My take
Selling servicing rights to pay down debt is the right call. A profit of $205 million or more while the industry is making fewer loans says the lending business is holding up. If the final numbers match, that multiple has plenty of room to climb.
Of course, these are preliminary numbers. Watch the final third-quarter report and the rights offering’s close on Nov. 12.
So what is UWM stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
