Head-To-Head Contrast: Nationstar Mortgage (NSM) versus PennyMac Financial Services (PFSI)

Nationstar Mortgage (NYSE: NSM) and PennyMac Financial Services (NYSE:PFSI) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their profitability, dividends, institutional ownership, earnings, risk, analyst recommendations and valuation.

Earnings and Valuation

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This table compares Nationstar Mortgage and PennyMac Financial Services’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Nationstar Mortgage $1.65 billion 1.07 $30.00 million $1.48 12.18
PennyMac Financial Services $955.46 million 0.52 $100.75 million $2.20 9.57

PennyMac Financial Services has lower revenue, but higher earnings than Nationstar Mortgage. PennyMac Financial Services is trading at a lower price-to-earnings ratio than Nationstar Mortgage, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and target prices for Nationstar Mortgage and PennyMac Financial Services, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Nationstar Mortgage 2 1 2 0 2.00
PennyMac Financial Services 0 1 4 0 2.80

Nationstar Mortgage currently has a consensus target price of $18.30, suggesting a potential upside of 1.55%. PennyMac Financial Services has a consensus target price of $28.33, suggesting a potential upside of 34.60%. Given PennyMac Financial Services’ stronger consensus rating and higher probable upside, analysts clearly believe PennyMac Financial Services is more favorable than Nationstar Mortgage.

Profitability

This table compares Nationstar Mortgage and PennyMac Financial Services’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Nationstar Mortgage 1.82% 9.24% 0.85%
PennyMac Financial Services 10.55% 3.50% 0.87%

Institutional & Insider Ownership

98.8% of Nationstar Mortgage shares are owned by institutional investors. Comparatively, 93.3% of PennyMac Financial Services shares are owned by institutional investors. 0.8% of Nationstar Mortgage shares are owned by company insiders. Comparatively, 45.6% of PennyMac Financial Services shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Risk and Volatility

Nationstar Mortgage has a beta of 1.14, suggesting that its share price is 14% more volatile than the S&P 500. Comparatively, PennyMac Financial Services has a beta of 0.57, suggesting that its share price is 43% less volatile than the S&P 500.

Summary

PennyMac Financial Services beats Nationstar Mortgage on 8 of the 14 factors compared between the two stocks.

About Nationstar Mortgage

Nationstar Mortgage Holdings Inc. provides servicing, origination and transaction based services principally to single-family residences throughout the United States. The Company operates through three segments: Servicing, Originations and Xome. The Company provides residential loan services in the United States. The Company also operates an integrated residential loan origination platform that is primarily focused on customer retention. Its Xome subsidiary offers an array of complementary services related to the purchase and disposition of residential real estate. It provides non-bank services and residential mortgage services in the United States conducting operations through its Nationstar Mortgage and Champion Mortgage brands. It originates and purchases conventional mortgage loans conforming to the underwriting standards of the government sponsored entities, which it collectively refers to as Agency loans. The Xome segment is a provider of technology and data-enhanced solutions.

About PennyMac Financial Services

PennyMac Financial Services, Inc., through its subsidiaries, engages in the mortgage banking and investment management activities in the United States. It operates through three segments: Loan Production, Loan Servicing, and Investment Management. The Loan Production segment is involved in the origination, acquisition, and sale of mortgage loans. This segment originates first-lien residential conventional and government-insured or guaranteed mortgage loans to allow customers to purchase or refinance their homes. The Loan Servicing segment engages in the servicing of newly originated mortgage loans, and execution and management of early buyout loans. It performs loan administration, collection, and default management activities, including the collection and remittance of loan payments; response to customer inquiries; accounting for principal and interest; holding custodial funds for the payment of property taxes and insurance premiums; counseling delinquent mortgagors; and supervising foreclosures and property dispositions. This segment also services conventional and government-insured or guaranteed loans; and distressed mortgage loans that have been acquired as investments by its advised entities. The Investment Management segment is involved in sourcing, performing diligence, bidding, and closing investment asset acquisitions; managing correspondent production activities for PennyMac Mortgage Investment Trust; and managing the acquired assets for the advised entities. PennyMac Financial Services, Inc. was founded in 2008 and is based in Westlake Village, California.

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