Mortgage companies were among Wall Street’s winners in April, despite the Federal Reserve’s steady increases in bank interest rates. Shares of IndyMac Bancorp, Countrywide Financial Corp. and Washington Mutual posted gains of 17.3 percent, 12.8 percent and 5.2 percent, respectively, and helped push the Inman Index into plus territory for the month.
A Motley Fool columnist noted that plenty of people still have reasons to obtain a new mortgage, even though “some red-hot housing markets remain highly susceptible for a tumble,” in his opinion. That perceived demand for mortgages may make mortgage company stocks attractive to investors.
Indeed, IndyMac’s shares were up $7.13 in April to close at $48.32. The company reported a 26 percent increase in first-quarter earnings from $63 million, or 98 cents per share, in 2005, to $80 million, or $1.18 per share, in 2006, and an upward revision in management’s earnings forecast to a range of $5 to $5.40 per share this year. Revenue increased 20 percent to $304 million and the dividend was boosted to 46 cents per share for the first quarter of 2006.
An analyst at RBC Capital Markets downgraded his opinion on IndyMac from “outperform” to “sector perform,” yet increased his target price from $47 to $50 after the earnings announcement, according to NewRatings.com.
Earlier in the month, Fitch Ratings said it upgraded its outlook on IndyMac from “stable” to “positive” to reflect the company’s “solid operating performance, more diversified and stable funding profile, and improved credit metrics with the expectation that these underlying credit strengths will remain.”
Countrywide announced earnings of $684 million, or $1.10 per share, for the first quarter of 2006, a decrease compared with $689 million, or $1.13 per share, for the first quarter of 2005. Management boosted the low end of the company’s 2006 earnings outlook to a range of $3.90 to $4.80 per share.
Earlier in the month, analysts at Stifel & Co. reiterated a “buy” rating on Countrywide with a target price of $48 per share. Shares gained $4.61 in April to close at $40.66.
Washington Mutual announced it will pay $983 million, or $16 per share, in cash to acquire Commercial Capital Bancorp, a financial services company in Irvine, Calif. The news helped WaMu’s shares gain $2.24 to close at $45.06.
The company also reported net income of $985 million, or 98 cents per share, for the first quarter of 2006 compared with $902 million, or $1.01 per share, for the first quarter of 2005. The higher net income was attributed in part to growth in WaMu’s credit-card business after its October 2005 acquisition of Providian Financial Corp., while the lower per-share earnings was pegged to a larger number of shares outstanding in the recent quarter. Revenue climbed 16 percent to more than $3.8 billion.
Analysts at DA Davidson kept a “neutral” rating on WaMu with a target price of $45, while an analyst at Punk Ziegel & Co. maintained a “market perform” rating with a target price of $46, according to NewRatings.com.
Neither Fannie Mae nor Freddie Mac shared in Wall Street’s enthusiasm for mortgage-sector stocks in April. Fannie Mae’s shares lost $1.17, or 2.3 percent, to close at $50.60, while Freddie Mac’s shares gained a scant 12 cents, or 0.2 percent, to close at $61.06.
Freddie Mac agreed to pay a $3.8 million civil penalty to settle allegations that the company violated federal election laws when it used corporate resources to sponsor political fund-raising events and to shell out $410 million to settle shareholder lawsuits filed after the disclosure of its accounting problems. The company also announced a new lower estimate of its 2005 net income, which it now expects to report this month, and acknowledged it still needs to improve its accounting controls and reporting processes, according to news reports.
The hypothetical Inman Index of 10 publicly traded real estate and mortgage corporations outperformed the broader market indices in April with a gain of more than 4 percent. The Dow Jones Industrials and Standard and Poor’s 500 indices were up 2.3 percent and 0.6 percent, respectively, while the Nasdaq Composite was down 1.3 percent.
Marcie Geffner is a real estate reporter in Los Angeles.