United Wholesale Mortgage Corp.’s parent company, UWM Holdings Corp. (NYSE:UWMC), seems to be a steal here. Given its low price-to-earnings ratio (P/E) and attractive dividend yield, I believe UWMC stock is worth at least 36 percent more, or $10 per share.
UWM announced its first-quarter earnings on May 10, revealing that it earned $665.3 million in adjusted net income.
The company also stated that it had a 2.19 percent “absolute benefit margin.”
UWMC’s Earnings Estimate
The total benefit margin is a method of calculating income for a business based on the amount of loans it produces. It translates to $1.074 billion in loan fee income, or 2.19 percent of the overall $49.094 billion in loan volume in the quarter. UWM also profiteers from servicing rights. However, the vast majority of its $1.189 billion in quarterly revenue comes from land volume payments.
The adjusted net income of $665.3 million reflected 55.9% of overall sales. This demonstrates the company’s incredible profitability. This can also be expressed as a percentage of total loan amount. For example, adjusted net income of $665.3 million represented 1.355 percent of total loans closed during the period.
As a result, we can forecast earnings for the year based on its Q2 guidance. According to the firm,
We anticipate second quarter production to be in the $51-$55 billion range, with expected gain margin between 75 and 110 bps.
Let’s say it brings in $53 billion. Assuming a margin of 100 basis points, sales will be $530 million. This is down from $1.074 billion in the previous quarter. The net revenue will be $655 million after bringing in $125 million in servicing revenue.
On May 11th UWMC announced that it would be repurchasing up to $300 million of its shares during a 24 month period. As the company repurchases $300 Million worth of its own shares, the price will significantly increase +36% which would set the value of the stock over $10.