MonthiraYodtiwong
Elevator Pitch
I rate loanDepot, Inc. (NYSE:LDI) stock as a Hold. Previously, I touched on the appointment of LDI’s new “Chief Human Resources Officer” and “executive director of enterprise partnerships and acquisitions” in my October 12, 2023 update. This latest article assesses loanDepot’s Q4 2023 financial results and its 2024 prospects.
On the positive side of things, an acceleration in LDI’s revenue growth for the second half of this year is highly probable assuming that rate cuts materialize. On the negative side of things, it seems premature to turn positive on loanDepot now as its Q3 2024 results will only be revealed in November, while LDI’s potential 2H 2024 turnaround is priced in to a certain degree. As such, I leave my existing Hold rating for loanDepot unchanged.
LDI’s Recent Quarterly Results Fell Short Of Expectations
In my prior October 2023 write-up, I cautioned that “a significant improvement in loanDepot’s financial results for the short term is less likely”, and I was right considering LDI’s latest fourth quarter financial performance.
On March 12, 2024 after trading hours, LDI released the company’s Q4 2023 results announcement. The company’s top line, EBITDA, and bottom line for the latest quarter were weaker than what the market had anticipated. The market reacted negatively to loanDepot’s below-expectations fourth quarter numbers. LDI’s stock price fell by -7.9% and -6.0% on March 13 and March 14, respectively following its results disclosure.
LDI’s top line contracted by -14% QoQ from $265.7 million in the third quarter of 2023 to $228.6 million for the fourth quarter of the previous year, which was -3% below the market’s consensus revenue forecast of $236.8 million. Normalized EBITDA for loanDepot decreased by -19% QoQ to $15.0 million in the most recent quarter, and that was -15% lower than Wall Street’s consensus estimate of $17.6 million (source: S&P Capital IQ). The company’s actual Q4 2023 net loss of -$26.7 million was roughly on par with its Q3 2023 bottom line of -$26.9 million, and this is worse than the analysts’ consensus net loss projection of -$21.0 million as per S&P Capital IQ data.
At the company’s Q4 2023 results briefing, loanDepot indicated that its most recent quarterly performance was affected by the “seasonal slowdown in home purchase activity” and “higher non-recurring restructuring costs and asset impairment charges” relating to its “cost reduction program.” In specific terms, LDI’s loan origination volume declined by -12% QoQ in Q4 2023, which is largely consistent with the -14% QoQ decrease in revenue for the final quarter of the prior year. Also, the company’s restructuring expenses and write-offs almost doubled from $2.2 million in Q3 2023 to $4.3 million for Q4 2023.
Q1 2024 Loan Origination Volume Guidance Was Disappointing
The company expects its loan origination volume to decrease from $4.9 billion in Q1 2023 to $4.5 billion for Q1 2024 based on the mid-point of its guidance, and this is also much lower than its actual Q4 2023 loan origination volume of $5.4 billion. This is aligned with the sell side’s consensus forecast that loanDepot’s top line growth will moderate from +35% YoY for Q4 2023 to +12% YoY (source: S&P Capital IQ) in Q1 2024.
LDI explained at its recent fourth quarter earnings call that its Q1 2024 loan origination volume guidance took into account “the seasonal decrease in home buying activity and the impact of the January cyber event.”
In January this year, loanDepot issued a press release highlighting that “an unauthorized third party gained access to sensitive personal information of approximately 16.6 million individuals in its systems” which is the “cyber event” affecting its Q1 2024 performance. But loanDepot stressed at the recent quarterly results call that the “cyber event” is “not expected to have a material impact from a full year (FY 2024) perspective.”
But A Meaningful Turnaround In 2H 2024 Is Likely
Even though the company’s first quarter guidance was unimpressive, loanDepot’s results for the full-year, or more specifically 2H 2024, might be better.
Mortgage Bankers Association or MBA is projecting a +23% increase in mortgage originations this year. This is consistent with the analysts’ expectations (source: S&P Capital IQ consensus data) that LDI can turn around from a -22% revenue decline last year to register a +17% growth in top line for the current year. Specifically, the sell side sees loanDepot’s YoY top line expansion improving from +12% in Q1 2024 and +8% in Q2 2024 to +18% and +33% for Q3 2024 and Q4 2024, respectively.
At its latest Q4 earnings call, LDI noted that it is “looking forward to a constructive second half (2024) from a mortgage volume perspective” on the assumption that there is “some moderation” in “rates” for 2H 2024. This is in line with the market’s expectations of the Fed cutting rates in “mid-2024”.
Final Thoughts
It is too early to be bullish on loanDepot, and expectations of a 2H 2024 recovery might have been priced in to some extent. This means that a Hold rating for LDI is fair.
LDI is likely to report its Q3 2024 results in early November, so it will be another seven to eight months before there is a confirmation of a 2H 2024 turnaround for loanDepot.
On the other hand, loanDepot’s last done stock price of $2.14 (as of March 15, 2024) is still +88% higher as compared to its 52-week low of $1.14 recorded on October 14, 2023, notwithstanding the recent correction in its shares post-Q4 results. Its trailing Price-to-Tangible Book or P/TBV multiple has expanded from 0.33 times to 0.54 times (source: S&P Capital IQ) in the past one year.
