Rithm Capital Reports Pretax Income of $248 Million

In the second quarter of 2024, Rithm Capital Corp (RITM) demonstrated notable growth and operational success across its business segments. The company’s pretax income soared to $248 million, reflecting a robust 23% return on equity. Strategic acquisitions, including the purchase of SLS, have strengthened Rithm Capital’s servicing portfolio, securing its position as the second-largest nonbank servicer and the fifth-largest lender in the industry. With an expanding market share and a growing third-party client base, Rithm Capital is well-positioned for further expansion, especially with the Federal Reserve anticipated to lower rates in September.

Key Highlights:

• Rithm Capital’s second-quarter pretax income was $248 million, achieving a 23% return on equity.
• The acquisition of SLS and the management contract of Great Ajax have enhanced its servicing and commercial mortgage REIT operations.
• Newrez, Rithm Capital’s mortgage company, ranks as the second-largest nonbank servicer and fifth-largest lender.
• The company’s mortgage servicing rights (MSR) portfolio expanded by 28% quarter-over-quarter, alongside a 35% increase in origination business production volume.
• CEO Michael Nierenberg noted the challenges presented by rising housing prices and emphasized the firm’s commitment to credit quality and disciplined capital allocation.

Future Outlook:

• The anticipated rate cut by the Federal Reserve in September could reduce borrowing costs and enhance earning potential.
• Rithm Capital’s focus remains on operational excellence and maximizing shareholder returns.
• Strategies for growth include both organic expansion and further strategic acquisitions.

Bearish Insights:

• CEO Michael Nierenberg expressed concerns about the housing market, highlighting rising home prices and decreasing activity levels.
• The mortgage origination market is described as competitive and lacking in robustness.

Bullish Insights:

• The firm is optimistic about its capital allocation and financing strategies, aiming to decrease reliance on bank funding and boost high-yield issuance.
• Genesis Capital, Rithm Capital’s transitional lending business, is projected to exceed $3 billion in production this year.

Concerns:

• The company pointed out the mortgage origination business’s challenges with profitability and competitiveness.

Discussion Highlights:
During the earnings call, Nierenberg discussed the company’s hedging strategy and mentioned the successful integration of hedges into its MSR portfolios. Rithm Capital is evaluating a potential public listing to enhance its value and is collaborating with external advisors to optimize its capital structure. The strong performance in the second quarter highlights Rithm Capital’s strategic management focus and expansion efforts. With a solid servicing portfolio and a clear plan for navigating current market conditions, the company remains dedicated to its growth trajectory and delivering value to shareholders and clients.

In light of Rithm Capital’s recent accomplishments and strategic initiatives, an assessment of the company’s financial health reveals significant insights. With a market capitalization of $5.61 billion and a price-to-earnings (P/E) ratio of 7.89, the company may present an appealing opportunity for value investors. Furthermore, the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at 7.49.

Importantly, Rithm Capital has consistently maintained dividend payments for 12 years, with a current dividend yield of 8.67%. This commitment to returning value to shareholders highlights the company’s financial stability, especially in a landscape where income-producing investments are increasingly sought after.

Though the company’s stock price can exhibit volatility—a factor that might present both opportunities and risks for investors—its trading near a 52-week high suggests market confidence in Rithm Capital’s operational performance and outlook.

For those looking to explore Rithm Capital’s potential further, additional insights and tips related to the company’s financial standing and market performance are available, enhancing the analysis for informed investment decisions.

Earnings Call Summary:
In the quarterly earnings call, Rithm Capital’s leadership highlighted the successful integration of strategic acquisitions, increased servicing capacity, and continued market share growth. Emphasizing a focus on credit quality, dynamic growth strategies, and adapting to market conditions, Rithm Capital’s team expressed optimism about the company’s ongoing trajectory and overall market positioning.