PSMH: Scaling Back Estimates and Target Price Following Second Quarter
Ann Heffron, CFA
PSM Holdings, Inc. (PSMH) posted a net loss of $0.5 million, or a loss per share of $0.02, for 2012’s fiscal second quarter, ending December 31, 2011. This compares to a fiscal first quarter (ending September 30, 2011) net loss of $1.1 million, or a loss per share of $0.05. Both quarters reflect the adoption of PSMH’s new business model.
Earnings were below our second quarter diluted EPS estimate of $0.02 per share. Both revenues and expenses came in lower than we had anticipated, with the $2.1 million shortfall in revenues outweighing the $0.9 million benefit from reduced costs.
We have significantly scaled back our estimates, based upon weaker loan origination volume and gross profit margins, as experienced in the second quarter. Our new diluted estimates for the June 30 fiscal years are a loss per share of $0.06 for fiscal 2012 and earnings per share of $0.15 for fiscal 2013. This compares to our previous diluted EPS estimates of $0.25 in fiscal 2012 and $0.50 in fiscal 2013.
Our new $1.25 target price compares to PSMH’s current stock price of $1.00 and our previous target price of $3.00, which was based upon significantly higher EPS estimates. We are maintaining our outperform recommendation on PSMH shares, with our $1.25 target price representing a total return of 25%. We note PSMH shares are up 33% year to date and have increased in value by 67% since we initiated coverage last December.
PSM Holdings, Inc. is engaged in the businesses of mortgage banking, in which PSMH both originates and funds mortgage loans through its own warehouse lines of credit and currently accounts for about 90% of closed loans, as well as mortgage brokerage, in which PSMH originates mortgage loans funded by over 50 third-party lenders. PSMH immediately sells these loans to its third-party lenders or into the secondary mortgage market. The Company offers a full range of mortgage loan products, including adjustable rate mortgages, fifteen, twenty, and thirty-year fixed rate loans, and balloon loans with a variety of maturities, as well as refinancing, construction loans, second mortgages, debt consolidation, and home equity loans.
PSMH had total assets of $5.1 million at the 2011 fiscal yearend on June 30, 2011, total revenues of $3.9 million for the 2011 fiscal year, and closed 845 mortgage loans, worth $144 million, during this period. Operations are carried out by the company’s two wholly owned subsidiaries, PrimeSource Mortgage, Inc. (PSMI) and United Community Mortgage Corp. (UCMC). Through its subsidiaries, PSMH operates and is licensed in the following 17 states: Arkansas, California, Colorado, Georgia, Idaho, Iowa, Kentucky, Louisiana, Montana, Nebraska, New Jersey, New Mexico, New York, Oklahoma, Texas, Washington, and Wyoming. State license applications are pending in an additional 17 states, with the majority expected to be approved by June 30, 2012.
To view a free copy of our most recent research report on PSMH, visit Ann Heffron’s page at http://scr.zacks.com/ .
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