CORPORATE FOCUS—Refinancing Boom Giving Huge Boost to Countrywide

0



Summary


Business:

Mortgage banking business


Headquarters:

Calabasas


CEO:

Angelo Mozilo


Market Cap:

$5.5 billion Dividend Yield: .91%


Total Liabilities:

$19.4 billion P/E Ratio: 11.4


Long-Term Debt:

$500 million

Even in these uncertain times, Countrywide Credit Industries Inc. has prospered.

Before Sept. 11, the holding company behind Countrywide Home Loans already was cashing in on an increase in refinancing activity resulting in a 64 percent increase in net income for its second quarter, which ended Aug. 31.

Since then, the Federal Reserve has lowered interest rates twice, leading to even more refinancing activity.

The company also has expectations that third quarter earnings will beat analysts’ projections. Countrywide said it expects to earn between $1.20 and $1.25 a share.

Investors, many struggling to find some semblance of stability, have sent Calabasas-based Countrywide’s stock price soaring. After closing at $39.80 on Sept. 10, the stock has increased more than 15 percent, to $45.95 on Oct. 2.

“These are very positive times for Countrywide,” said Thomas O’Donnell, mortgage finance analyst at Salomon Smith Barney. “The (refinance) wave is going to be bigger than everyone thought a few weeks ago.”

Countrywide Credit Industries reported net income of $149.2 million ($1.20 per diluted share) for the second quarter, compared with $91 million (77 cents) in the like year-earlier quarter. Second quarter revenues were $754.9 million, vs. $516.8 million in the second quarter of 2000, a 46 percent increase.

Howard Shapiro, vice president and mortgage finance industry analyst at Goldman Sachs in New York said the steep decline in interest rates is “what’s driving the price right now.”

“I think they’re going to be the beneficiary of a refinance market that is just getting started,” he said. Shapiro expects refinancing activity to increase by “as much as 50 percent to start.”

In an attempt to revive the nation’s slumping economy, the Fed has lowered interest rates nine consecutive times. The most recent cut, a half point, occurred last Tuesday and brought rates to a four-decade low of 2.5 percent. That reduction has brought the benchmark rate below the inflation level.


Broader reach

Analysts say that the refinance boom will fuel future earnings growth should the housing market begin to soften. Shapiro estimates that while the home sales market will decline 13 percent to 17 percent in 2002, the boom in refinancing will more than cover any losses in new home mortgages. “They’re not resting on their laurels in this market,” he said.

Stanford Kurland, Countrywide’s president and chief operating officer, said “It’s a very good origination environment today. The intent of the Fed to lower interest rates is to stimulate the economy. It may take six months or a year, but ultimately we’ll see continued refinance activity.”

As long as they keep a high level of loan originations, their earnings will subsequently rise, said O’Donnell.

Concerning the company’s long term prospects, O’Donnell said he believes Countrywide should have little trouble maintaining a stable revenue stream. “It has always been a cyclical industry,” he said. “Countrywide has pioneered the concept of having a large service portfolio, when rates go back up, that will increase in value.”

In discussing the future, Kurland echoed those remarks.

“When interest rates rise, we have positioned our company for the servicing segment to then produce higher levels of earnings,” he said.

In the past two years, Kurland said the company has been focusing its efforts on diversifying its revenue sources. “Thirty percent (of company revenues) comes from diversification efforts,” he said. “In 1999 that number would have been closer to 10 percent.”

The company’s other sources of revenue include non-core lending activities such as insurance, securities and ancillary closing services including credit reporting, a title agency and escrow operation.

No posts to display