1. Mr. Cooper Group Inc. (NASDAQ:COOP)
Omega Advisors’ Stake Value: $176,801,000
Percentage of Omega Advisors’ 13F Portfolio: 8.88%
Number of Hedge Fund Holders: 38
Mr. Cooper Group Inc. (NASDAQ:COOP) was incorporated in 2015 and is based in Coppell, Texas, providing mortgage loans and financial assistance to customers. Securities filings for Q4 2021 reveal that Leon Cooperman owns 4.2 million shares of Mr. Cooper Group Inc. (NASDAQ:COOP), worth $176.8 million, representing 8.88% of the total 13 F holdings. Mr. Cooper Group Inc. (NASDAQ:COOP) is the biggest stock holding in Cooperman’s portfolio.
On February 15, Barclays analyst Mark DeVries raised the firm’s price target on the shares to $51 from $46 and maintained an Equal Weight rating on Mr. Cooper Group Inc. (NASDAQ:COOP). “Strong results” in servicing led to the Q4 earnings beat while origination results were mostly in line as the market normalizes, the analyst told investors in a research note.
According to the database of Insider Monkey, 38 hedge funds were bullish on Mr. Cooper Group Inc. (NASDAQ:COOP) at the end of the fourth quarter of 2021, up from 27 funds in the earlier quarter. Ric Dillon’s Diamond Hill Capital owned a significant stake in the company, with 2.8 million shares worth $117.3 million.
Here is what Voss Capital has to say about Mr. Cooper Group Inc. (NASDAQ:COOP) in their Q4 2020 investor letter:
“Another new long that is a value oriented special situation is Mr. Cooper (COOP). COOP is trading at 6x NTM earnings and under 1x NTM tangible book. Like MBIN, we believe the shares offer an asymmetric bet towards ongoing strength in mortgage originations and refinancing activity along with hard catalysts in the next 6-12 months that should force the stock to re-rate.
Mr. Cooper’s business segments offer natural hedges to each other. When rates rise, their mortgage servicing business does better; when rates fall (like now) their refinance and mortgage originations division does better. If there is mortgage market weakness or consumer distress and foreclosures surge, their Xome business, an online real estate marketplace known for auctions, thrives.
Our thesis for Mr. Cooper is two-fold. Firstly, we believe the stock has been “held back” because it is perceived to be a temporary, but unsustainable, beneficiary of the spike in refinancing. Not only do we believe refinancing can continue into 2021 (refi mortgage apps up 45.6% y/y for the week ended February 5th), which will increase book value, but we also believe their mortgage servicing business will pick up when refinancing and originations ebb, smoothing the earnings far more than is currently priced in.
Secondly, management has telegraphed their intent to sell Xome, either part or in whole, and have been adamant the business is worth “at least $1 billion”, a number that seems both plausible and potentially conservative in the current market environment with frothy FinTech/marketplace valuations. While Xome’s results are present on the income statement, its value is nowhere to be found on the balance sheet. With a sale in the $1 billion range Mr. Cooper will be swimming in cash like Scrooge McDuck.14 The sale will also materially increase tangible book value per share, which is how most investors value the stock. Because of tax accounting around their Net Operating Losses(NOLs), the company will have more flexibility around buybacks and special dividends starting in August. So, our thesis is that a sale of Xome will occur and the market will either push the company to at least tangible book value, or management will force the issue by aggressively buying back stock and/or issuing a large special dividend. We think the stock has >35% upside over the next six months.”
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