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Why Shares of Mr. Cooper Group Dropped 10% on Wednesday

By Lou Whiteman – Updated Apr 14, 2019 at 5:32PM

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An analyst predicts a "painful near-term reality" for shareholders.

What happened

Shares of mortgage company Mr. Cooper Group (NASDAQ: COOP) plunged 10.35% on Wednesday after an analyst downgraded the stock and predicted a "painful" period on the horizon.

So what

Mr. Cooper Group was created last year via a merger between Nationstar Mortgage and WMIH, the post-bankruptcy remnants of one-time mortgage giant Washington Mutual. The company's core business is mortgage servicing, but it also offers a loan origination platform.

Two hands shake over a clipboard with a miniature house on top of it.

Image source: Getty Images.

On a post-earnings conference call with investors held March 7, company Vice Chairman and CFO Chris Marshall said that in 2019 Mr. Cooper intends to "shift from growth to profitability and deleveraging," paying down the debt it took on for the merger and follow-up deals, including a November purchase of Pacific Union Financial.

The company had $12.46 billion in total debt as of year-end.

In a research note Wednesday, Piper Jaffray analyst Kevin Barker said the plan to cut costs and deleverage is a good move for the long term but will result in a "painful near-term reality for shareholders."

Barker downgraded Mr. Cooper to underweight from neutral and cut his price target for the shares to $9 from $15.50.

Check out the latest earnings call transcripts for the companies we cover.

Now what

It's worth noting Wall Street is far from unanimous on Mr. Cooper. BTIG analyst Giuliano Bologna on March 7 called the company a buy and gave it a $21 price target, saying, "We believe [Mr. Cooper Group] has all the right pieces in place and the shift in strategy will yield positive returns, putting the company in a position to increase its earnings power and drive shareholder value as the impacts of the transition roll off during FY19."

Both bulls and bears agree Mr. Cooper has a lot of work to do in the quarters to come. Investors need to closely monitor the company while the process plays out.

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