Image source: Walker & Dunlop.
The real estate market has rebounded nicely since the financial crisis, and commercial real estate projects have geared up in many markets across the nation. Walker & Dunlop (WD -2.04%) has made itself a specialty player in the commercial real estate market, taking on Bank of America (BAC -1.07%) and other traditional commercial lenders by offering alternatives that other financial institutions typically don't match. Coming into Wednesday's fourth-quarter financial report, Walker & Dunlop investors expected the company's growth to continue, and although some of its results were mixed, Walker & Dunlop remains optimistic about the future for the real estate market. Let's take a closer look at Walker & Dunlop and what it told investors in its most recent report.
Walker & Dunlop stokes its bottom line despite a revenue-growth slowdown
Walker & Dunlop's fourth-quarter results were mixed in the eyes of investors. Revenue of $121.4 million was up just 8% compared to the fourth quarter of 2014, and that was quite a bit slower than the 14% growth pace that investors had expected to see. Net income jumped 26% to $20.4 million, however, and the resulting earnings of $0.67 per share were $0.03 higher than the consensus forecast among those following the stock.
A closer look at Walker & Dunlop's results shows some of the crosswinds that the real estate industry faces in light of recent economic turbulence. Transaction volume jumped 10% to $4.7 billion, although that was less than the company posted in the third quarter.
Walker & Dunlop saw gains from its mortgage banking activities rise 7% to $71.9 million. The company cited higher loan originations and an increase in Fannie Mae average servicing fees. Gains attributable to mortgage servicing rights jumped 13%, and servicing fees climbed by 17%. However, a drop in prepayment fee income held back Walker & Dunlop's sales growth.
Cost containment remained important at Walker & Dunlop, and total expenses climbed just 2% compared to the year-ago quarter. Increases in personnel costs were largely held in check by lower payouts for variable compensation, and that pushed operating margin up 4 percentage points to 28%.
Credit quality also stayed strong. Walker & Dunlop said it suffered no net write-offs during the quarter, and it had no delinquencies of 60 days or longer in its servicing portfolio. The company specifically said it has no significant exposure to energy, which has been an area of concern for Bank of America and other large institutions that made big loans.
CEO and Chairman Willy Walker celebrated Walker & Dunlop's strong performance. "Our record 2015 results reflect the tremendous success we have achieved in acquiring companies," Walker said, "hiring exceptional professionals, exceeding our clients' expectations, and establishing one of the strongest brands in the industry."
Can Walker & Dunlop keep climbing?
Walker also noted his belief that the real estate market should stay strong in 2016. "The current turmoil in the equity and debt capital markets presents opportunities for our company," the CEO said, and he believes that Walker & Dunlop will become a first choice in the multifamily financing area. At the same time, if Bank of America and other traditional financial institutions pull back from the commercial real estate space, it will only give Walker & Dunlop an even bigger chance to play a more vital role there.
Walker & Dunlop also sees opportunity in its own stock. The company announced a $75 million stock repurchase authorization extending over the next year. At current prices, that would represent more than 10% of Walker & Dunlop's overall market capitalization, but with shares trading at an earnings multiple of less than 10, it's easy to understand why the company sees its shares as a value proposition.
Walker & Dunlop has done a good job of capitalizing on its niche and keeping potential big-bank competitors at bay. As long as the economy holds up, Walker & Dunlop should remain in a position to keep growing over time.
