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Will Lower Servicing Revenues Hurt Rithm's (RITM) Q3 Earnings?
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Rithm Capital Corp. (RITM - Free Report) is set to report its third-quarter 2023 results on Oct 26, before the opening bell. This time around, the company’s overall performance is likely to have received a boost from higher interest income, only to be undone by a reduced net gain on the sale of originated mortgage loans.
In the last reported quarter, the leading capital provider reported adjusted operating earnings per share of 62 cents, beating the Zacks Consensus Estimate by 82.4% due to the strength witnessed in its mortgage, residential securities, properties and loans businesses. Also, improved interest income, continuous acquisition of consumer loans and a declining overall expense level aided the results. However, the positives were partly offset by feeble contributions from the origination and servicing segments.
Earnings Surprise History
Rithm’s earnings beat the consensus estimate in all the prior four quarters, with the average being 33.4%. This is depicted in the graph below:
Higher fees, interest income and multiple acquisitions are expected to have supported its revenue growth. The consensus estimate for Rithm’s third-quarter revenues is pegged at $921.8 million, indicating a rise from the year-ago reported figure of $912.8 million.
The high interest rate environment is expected to have supported Rithm in generating enhanced returns from specific investments and consumer loans. The Zacks Consensus Estimate for third-quarter interest income reflects impressive 42.2% year-over-year growth.
The Zacks Consensus Estimate for third-quarter earnings per share of 34 cents has witnessed no movement in the past week. The estimated figure projects an increase of 6.3% from the prior-year reported number.
Improved profits in MSR Related Investments and Residential Mortgage Loans are likely to have aided the company’s profits in the third quarter. The Zacks Consensus Estimate for third-quarter other income indicates a 233.7% year-over-year increase.
However, the Zacks Consensus Estimate for net gain on originated residential mortgage loans held for sale indicates a 31% year-over-year decline for the third quarter. Also, the consensus mark for net servicing revenues implies a 9.2% fall from the prior-year figure, likely due to higher discount rates, partially offsetting the upside.
The comparatively higher inflation level is expected to have led to higher expenses for RITM, likely affecting its profits in the quarter under review, making an earnings beat uncertain. Also, the higher average interest rates are likely to have increased its Interest expense and warehouse line fees in the quarter under review, partly offsetting profit growth. Nevertheless, its hedging strategies are likely to have provided some protection from the burden of increasing interest expenses.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Rithm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.73%. This is because the Most Accurate Estimate currently stands lower than the Zacks Consensus Estimate of 34 cents.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
While an earnings beat looks uncertain for Rithm, here are some companies in the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Welltower Inc. (WELL - Free Report) has an Earnings ESP of +0.45% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for Welltower’s bottom line for the to-be-reported quarter is pegged at 89 cents per share, indicating 6% year-over-year growth. It has remained stable over the past week. The consensus estimate for WELL’s revenues is pegged at $1.6 billion, suggesting a 10.8% increase from a year ago.
Cboe Global Markets, Inc. (CBOE - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Cboe Global’s bottom line for the to-be-reported quarter is pegged at $1.84 per share, indicating 5.8% growth from a year ago. The consensus estimate for revenues is pegged at $478.9 million, indicating an 8.2% increase from a year ago. CBOE beat earnings estimates in each of the past four quarters, with an average surprise of 3.1%.
KKR & Co. Inc. (KKR - Free Report) has an Earnings ESP of +2.24% and a Zacks Rank of 3.
The Zacks Consensus Estimate for KKR’s bottom line for the to-be-reported quarter is pegged at 80 cents per share, which increased by 2 cents in the past month. KKR beat earnings estimates in all the past four quarters, with an average surprise of 7.5%.
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Will Lower Servicing Revenues Hurt Rithm's (RITM) Q3 Earnings?
Rithm Capital Corp. (RITM - Free Report) is set to report its third-quarter 2023 results on Oct 26, before the opening bell. This time around, the company’s overall performance is likely to have received a boost from higher interest income, only to be undone by a reduced net gain on the sale of originated mortgage loans.
In the last reported quarter, the leading capital provider reported adjusted operating earnings per share of 62 cents, beating the Zacks Consensus Estimate by 82.4% due to the strength witnessed in its mortgage, residential securities, properties and loans businesses. Also, improved interest income, continuous acquisition of consumer loans and a declining overall expense level aided the results. However, the positives were partly offset by feeble contributions from the origination and servicing segments.
Earnings Surprise History
Rithm’s earnings beat the consensus estimate in all the prior four quarters, with the average being 33.4%. This is depicted in the graph below:
Rithm Capital Corp. Price and EPS Surprise
Rithm Capital Corp. price-eps-surprise | Rithm Capital Corp. Quote
Let’s see how things have shaped up prior to the third-quarter earnings announcement.
Q3 Factors to Note
Higher fees, interest income and multiple acquisitions are expected to have supported its revenue growth. The consensus estimate for Rithm’s third-quarter revenues is pegged at $921.8 million, indicating a rise from the year-ago reported figure of $912.8 million.
The high interest rate environment is expected to have supported Rithm in generating enhanced returns from specific investments and consumer loans. The Zacks Consensus Estimate for third-quarter interest income reflects impressive 42.2% year-over-year growth.
The Zacks Consensus Estimate for third-quarter earnings per share of 34 cents has witnessed no movement in the past week. The estimated figure projects an increase of 6.3% from the prior-year reported number.
Improved profits in MSR Related Investments and Residential Mortgage Loans are likely to have aided the company’s profits in the third quarter. The Zacks Consensus Estimate for third-quarter other income indicates a 233.7% year-over-year increase.
However, the Zacks Consensus Estimate for net gain on originated residential mortgage loans held for sale indicates a 31% year-over-year decline for the third quarter. Also, the consensus mark for net servicing revenues implies a 9.2% fall from the prior-year figure, likely due to higher discount rates, partially offsetting the upside.
The comparatively higher inflation level is expected to have led to higher expenses for RITM, likely affecting its profits in the quarter under review, making an earnings beat uncertain. Also, the higher average interest rates are likely to have increased its Interest expense and warehouse line fees in the quarter under review, partly offsetting profit growth. Nevertheless, its hedging strategies are likely to have provided some protection from the burden of increasing interest expenses.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Rithm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.73%. This is because the Most Accurate Estimate currently stands lower than the Zacks Consensus Estimate of 34 cents.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Rithm currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stocks to Consider
While an earnings beat looks uncertain for Rithm, here are some companies in the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Welltower Inc. (WELL - Free Report) has an Earnings ESP of +0.45% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for Welltower’s bottom line for the to-be-reported quarter is pegged at 89 cents per share, indicating 6% year-over-year growth. It has remained stable over the past week. The consensus estimate for WELL’s revenues is pegged at $1.6 billion, suggesting a 10.8% increase from a year ago.
Cboe Global Markets, Inc. (CBOE - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Cboe Global’s bottom line for the to-be-reported quarter is pegged at $1.84 per share, indicating 5.8% growth from a year ago. The consensus estimate for revenues is pegged at $478.9 million, indicating an 8.2% increase from a year ago. CBOE beat earnings estimates in each of the past four quarters, with an average surprise of 3.1%.
KKR & Co. Inc. (KKR - Free Report) has an Earnings ESP of +2.24% and a Zacks Rank of 3.
The Zacks Consensus Estimate for KKR’s bottom line for the to-be-reported quarter is pegged at 80 cents per share, which increased by 2 cents in the past month. KKR beat earnings estimates in all the past four quarters, with an average surprise of 7.5%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.