New Residential Investment Corp (NYSE:NRZ), a real estate investment trust specializing in investment and management of residential mortgage related assets (REIT),are seeing a lot of market interest this week as the company has agreed to buy Home Loan Servicing Solutions Lt (NASDAQ:HLSS) in a deal of about $1.2 billion. The deal consisted of buying 71 million shares of HLSS at a price of $17.08 per share or about $1.4 billion in total.
Home Loan Servicing Solutions Lt (NASDAQ:HLSS), a financing arm for investments in mortgage servicing contracts, was taken public in 2012. Now New Residential Investment Corp (NYSE:NRZ) is offering 40,000,000 shares of its ordinary stock to the public, out of which 28,286.980 are being offered by HLSS, the “selling stockholder” and the rest 11,713,020 shares are being offered by the REIT. Any proceeds from the sale of the HLSS offering, is not going to be shared with NRZ.
New Residential Investment Corp (NYSE:NRZ) has received a few “buy” ratings in the last few weeks as it rallied from $12 to $16.50 very sharply. FBR & Co. has maintained their “outperform” rating, while raising the price target to $18 from the earlier $17. On the other hand, the underperformance of the company on the basis of quarterly net income compared to the REIT industry and S&P500 can’t be overlooked. The quarterly net income, on a y-o-y basis, fell from $80.51 million to $54.23 million, a drop of 32.6%. The quarterly earnings per share declined by 40.3% on the same basis and another decline can be expected in the coming year. The EPS is expected to contract by over 25%.
Technically, the stock broke out of a 18-month long channel this year and quickly achieved the pattern implication target of $16, as shown on the chart. The huge volume spike and higher lows are keeping the uptrend intact but it may be a prudent step to keep a stop loss below $15 levels.