Stonegate Mortgage - A Value Trap With Dubious Adjusted Financials
- We believe Stonegate Mortgage investors will suffer significant losses as many issues we identify play out. We have well-researched reservations about the viability/sustainability of its business model.
- We believe management changed definitions for adjusted earnings without appropriate disclosures, and excluded recurring expenses (that don't reconcile). Both appear violations of SEC reporting guidelines (Reg G).
- Stonegate continues to raise capital on overstated projections and an MSR mark 32% higher than its peers. Sellside estimates have declined nearly 50% in eight months.
- We believe sell-side estimates are 67% too high, and at least 33% downside exists in the stock, and significantly more should its correspondent mortgage model fail to attract new capital.