We came across a bullish thesis on Mr. Cooper Group Inc. (COOP) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on COOP. Mr. Cooper Group Inc. (COOP)’s share was trading at $96.74 as of Dec 3rd. COOP’s trailing and forward P/E were 12.43 and 6.96 respectively according to Yahoo Finance.
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Mr. Cooper (COOP) presents a compelling investment case as a high-quality growth stock with a balanced business model, combining cyclicality with stability. While approximately half of its revenue stems from mortgage origination, which is sensitive to interest rate cycles, the other half is derived from servicing over six million mortgages. This servicing segment provides a steady revenue stream, growing at an impressive 38% year-over-year, offering resilience even during challenging economic conditions. Unlike typical mortgage-focused businesses, COOP’s servicing income has shielded it from severe price drawdowns, despite the cyclical pressures on its origination revenues.
Despite its strong fundamentals, COOP trades at a modest 12x price-to-earnings (P/E) ratio, which does not fully reflect its earnings potential in favorable market conditions. Historically, its trailing twelve-month net income peaked at over $1.5 billion, compared to the current $511 million. The market appears to undervalue the stability and growth potential of its servicing segment, much like Jackson Financial (JXN), where the stock required years to achieve fair value. Analysts predict COOP could achieve $13 per share in earnings by 2025. Even with a conservative P/E multiple of 12x, this implies a share price of $156, with further upside potential if the market recognizes its quality and grants a multiple expansion to 15x, potentially driving the stock to $195—a near doubling of its current valuation.
COOP is well-positioned to capitalize on interest rate declines, with refinancing opportunities for over one million mortgage holders and significant home equity in its portfolio. Approximately 20% of its serviced mortgages have rates above 6%, setting the stage for refinancing activity as rates approach 5%-5.5%. COOP’s ability to leverage this portfolio, coupled with its recent acquisition of Flagstar’s $1.3 billion mortgage portfolio, positions it for both organic and inorganic growth.
However, COOP’s executive compensation practices and frequent insider selling by its majority owner, KKR, remain concerns. Despite this, the company’s disciplined capital allocation strategy, including $50 million in quarterly share buybacks, has effectively reduced its share count from 100 million in 2018 to 66 million today, offsetting stock-based compensation. While buybacks have become less impactful as the stock price rises, COOP’s strong earnings potential and conservative valuation offer a rare blend of safety and significant upside, making it an attractive choice for quality-focused investors seeking a reliable two-bagger.
Mr. Cooper Group Inc. (COOP) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held COOP at the end of the third quarter which was 37 in the previous quarter. While we acknowledge the risk and potential of COOP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.