On Tuesday, Piper Sandler adjusted its outlook on PennyMac Financial (NYSE:PFSI) Services, Inc. (NYSE:PFSI) shares, raising its price target from $112.00 to $125.00. The firm maintained its Overweight rating on the stock. The revision follows the release of the "FSG Fourth Quarter Favorites," where PennyMac Financial was highlighted as a top pick for the fourth quarter of 2024.
The increase in the price target reflects an updated model by Piper Sandler, which now anticipates higher operating earnings per share (EPS) for the third quarter of 2024, estimating $2.87, up from the previous $2.85. This adjustment accounts for an expected rise in origination volume based on PennyMac Financial's intra-quarter update. However, this was partially balanced by a decrease in consumer direct gain on sale margins.
Concurrently, the estimated GAAP EPS for the same period has been lowered to $1.90 from the earlier forecast of $2.85. This change incorporates the impact of Mortgage Servicing Rights (MSR) marks (net). Despite targeting a 100% hedge ratio on MSRs, PennyMac Financial has experienced more significant net negative impacts over the past year due to heightened rate volatility.
The new price target implies that PennyMac Financial's shares are expected to trade at approximately 1.5 times the estimated tangible book value for the second quarter of 2025, an increase from the previous multiple of 1.4 times. This upward adjustment in the multiple is driven by higher peer multiples and strengthened confidence in the company's outlook, bolstered by the recent rally in mortgage rates.
In other recent news, PennyMac Financial Services demonstrated robust growth in its second quarter, reporting a net income of $98 million and a 50% increase in its quarterly common stock dividend to $0.30 per share. The company also anticipates total originations of $1.7 trillion for 2024 and $2.1 trillion for 2025.
Notably, PennyMac became the first servicer in the industry to incorporate the Veteran Affairs Service purchase program into its technology. In terms of financials, the company posted a pre-tax income of $41 million in its production segment and $89 million in its servicing segment. PennyMac also issued $650 million of new unsecured term notes, contributing to its total liquidity of $3.4 billion.
In analyst news, BTIG upgraded its price target for PennyMac from $105 to $115 while maintaining a Buy rating. Similarly, Piper Sandler increased its price target for the company to $112, sustaining an Overweight rating. Both firms highlighted PennyMac's resilient earnings profile and potential for improved earnings quality through operational efficiencies. These are among the recent developments for PennyMac Financial Services.
InvestingPro Insights
PennyMac Financial Services, Inc. (NYSE:PFSI) continues to demonstrate strong financial performance, aligning with Piper Sandler's optimistic outlook. According to InvestingPro data, PFSI's revenue growth has been impressive, with a 29.53% increase in the most recent quarter. This robust growth supports the analyst's decision to raise the price target and maintain an Overweight rating.
InvestingPro Tips highlight that PFSI has shown a strong return over the last three months, which is consistent with the stock's recent performance and the positive sentiment expressed in the article. Additionally, the company's profitability over the last twelve months reinforces its financial stability.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for PFSI, providing a deeper understanding of the company's financial health and market position.
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