Debt Collection to Spur Growth at Ocwen: Analyst

Shares of mortgage servicer and business process outsourcing (BPO) provider Ocwen Financial Corp. surged on Monday after an analyst predicted in a research note that the company would post “respectable” results for the first quarter and demand for its debt collection services would continue to grow.

West Palm Beach, Fla.-based Ocwen (NYSE: OCN) saw its shares rise more than 10 percent in trading Monday after Piper Jaffray analyst Robert Napoli issued a positive research note on the company. Napoli thinks that even with the current turmoil in the mortgage market, Ocwen will find some success with its primary business line: servicing residential mortgages.

Napoli also said that Ocwen’s other business offering, collection services, could be poised for big growth. He wrote, "[Ocwen's] consumer debt collections business appears to be gaining traction."

The company has offered accounts receivable management services for years, but recently bought a very large presence in the space. Last year, Ocwen closed a $55 million deal to buy Nationwide Credit, Inc. (NCI), one of the largest debt collection agencies in the country (“Collection Agency to be Acquired by Ocwen for $55 million,” June 7, 2007).

Ocwen states on its Web site that it is now the “5th largest collection agency in the nation” after the NCI acquisition. In its financial results for the fourth quarter of last year, Ocwen reported revenues of $16.3 million for its Recovery Group while noting that integration of the merger and staffing ramp-up was still ongoing. For the full year 2007, the collection division brought in $41.3 million in revenue, up more than 400 percent from the $7.7 million in revenues the unit counted in 2006 before the deal.

Monday’s positive stock movement was a break from a recent downward trend for the shares. Since early 2007, Ocwen’s shares have suffered from the downturn in the consumer mortgage market as its stock dropped from highs of around $17 per share to a 52-week low of $3.66 early Monday. The new low, combined with Napoli’s note, set the stage for a 10 percent rally yesterday. Napoli has a "buy" rating on Ocwen’s shares with a price target of $10 per share. Ocwen is expected to report first quarter results in early May.

Ocwen calls itself a “leading business process outsourcing provider to the financial services industry,” specializing in loan servicing, mortgage fulfillment and receivables management services. The company has offices in Arizona, California, Florida, Georgia, Illinois and New YorkCanada, Germany and India. and global operations in

Last month, Chairman and CEO William Erbey – and a group of private equity investors – abandoned an attempt to buy the outstanding shares of the company for $7 each and take Ocwen private after failing to reach an agreement with the company’s board. The board reported it would continue to consider strategic alternatives for the company.