Stonegate Shares Down Nearly 20% Over Last Two Sessions; Barclays Downgrades To Underweight

In a report published Monday, Barclays analyst Mark C. DeVries downgraded the rating on Stonegate Mortgage Corp SGM from Equal-Weight to Underweight, while reducing the price target from $10 to $7 on expectations of slowing growth. Stonegate reported 2Q15 core EPS of ($0.04), short of both the Barclays and the consensus estimates of $0.22. An increase in retail volumes enabled the company to post better-than-estimated gain on sale margins. The company's 2Q originations were in-line but locked volume, an indicator of origination volume, at $4.5 billion, which misses the Barclays estimate of $4.8 billion, thus indicating a softer start to originations in 3Q. Lower origination levels and slower top-line growth, along with continued execution risks, may "challenge SGM to consistently post strong Core EPS growth (as shown over the past four quarters," analyst Mark DeVries said. "SGM hasn't been able to properly execute on its strategy, translating into volatile core earnings that oscillate between gains and losses," DeVries added. The EPS estimates for 2015 and 2016 have been reduced from $1.00 to $0.47 and from $1.49 to $1.17, respectively.