Why This UWM Holdings Analyst Is Bullish Despite Potential Mortgage Market Slowdown

Newly public UWM Holdings Corp UWMC received a vote of confidence Tuesday after one Wall Street firm initiated bullish coverage on the Pontiac, Michigan-based mortgage firm. 

The UWM Holdings Analyst: Deutsche Bank analyst Ashish Sabadra started coverage of UWM Holdings with a Buy rating and $12 price target.

The UWM Holdings Thesis: UWM is the largest wholesale mortgage lender and the second-largest residential mortgage lender in the U.S.

In the initiation note, Sabadra said the company has leading proprietary technology, and he is bullish on the company’s shift toward wholesale mortgage origination.

“We believe that the shift, along with share gains and increasing service revenue, should help sustain the accelerated growth profile, despite the potential slowdown in mortgage origination,” the analyst said. 

Related Link: 2 Top Homebuilder Stocks For 2021, According To BofA

UWM has industry-leading gain margins and generates impressive profits, Sabadra said.

In addition, he said the company’s shareholder-friendly capital allocation makes the stock a compelling long-term value play.

The mortgage market has been on fire in the past year thanks to the Federal Reserve cutting interest rates to zero.

The Mortgage Bankers Association estimates total 2020 mortgage volume was around $3.2 trillion, potentially making it the biggest year since 2003.

United Wholesale Mortgage recently went public via a special acquisition company. A market frenzy over SPACs sent shares of UWMC as high as $14.38 in December ahead of the merger.

Shares have drifted steadily lower since that time and are now back under $10.

See also: Best Mortgage Lender Companies

UWM Price Action: UWM shares were trading down 0.67% to $8.96 at last check. 

Benzinga’s Take: UWM shares currently trade at just 6.4 times forward earnings, but investors need to be cautious of value traps in the mortgage market.

It is extremely unlikely the 2021 mortgage market can repeat the boom of 2020, and most companies are facing some very difficult year-over-year comparisons.