Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Nationstar Mortgage (NYSE:NSM) declined 17.2% on Thursday after the residential mortgage servicer announced third-quarter results that included a laundry list of negative surprises, including an earnings miss and slashed earnings guidance for 2013 and 2014.
So what: Nationstar Mortgage's posted earnings per share of $1.08 (ex-items), a 14% shortfall relative to analysts' forecast for $1.26. The company also took an axe to its 2013 earnings guidance, bringing the range down from $4.05-$4.75 to $2.65-$3.10. Worse still, it did a similar job on 2014 guidance, with a new range of $4.50-$6.00, compared to the prior range of $6.45-$7.50.
Nationstar Mortgage also announced that it is selling its non-core wholesale and distributed retail origination channels to Stonegate Mortgage. As a result of the transaction and other downsizing measures, Nationstar's head count is expected to fall by some 1,100 employees.
Now what: Nationstar's negative earnings surprise follows Ocwen Financial's third-quarter earnings-per-share miss of 60%. As Bloomberg News commented today: "Mortgage origination and servicing companies including Nationstar and Walter Investment are facing increased competition amid falling new loan volumes and fresh rivals." Long-term investors who anticipate a turn in the cycle (i.e., capital to leave the sector and fees to firm up) may wish to begin looking at Nationstar Mortgage or one of its competitors; however, the prevailing wind is not favorable and riding out the cycle could require much patience, along with a tolerance for volatility.
Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool has no position in any of the stocks mentioned, either. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.