Walker & Dunlop: Potential For Strong Future Growth

| About: Walker & (WD)

With triple-digit year-over-year increases in adjusted net income and revenues, Walker & Dunlop, Inc. (NYSE:WD) reported exceptional third-quarter 2012 results earlier this month. Earnings for this Zacks No. 1 Rank (Strong Buy) commercial real estate financial services company are expected to grow 9.7% in the current year and 24.1% in 2013. Furthermore, a forward P/E multiple of 9.32 and an impressive P/B multiple of 1.10 offer a promising value proposition to investors moving forward.

Strong Third Quarter

On Nov. 8, Walker & Dunlop reported third-quarter adjusted net income of $14.3 million, surpassing the year-ago tally by 135%. On a per-share basis, adjusted net income doubled to 56 cents, exceeding the Zacks Consensus Estimate by 40%.

Revenues grew more than twofold to $70.1 million, primarily due to a 141% year-over-year increase in loan originations to $1.3 billion and a 52% hike in servicing fee income to $13.3 million. The servicing portfolio grew 113% to $33.9 billion. The company expects to continue its bull run in the coming quarters as well, with $6.7 billion to $7.4 billion of loan originations in 2012 and between $8 billion and $10 billion in 2013.

Surge in Earnings Estimate Revisions

Over the past 30 days, the Zacks Consensus Estimate for 2012 has increased 4.2% to $1.75 as three of four earnings estimates moved higher, implying a year-over-year improvement of 9.7%. The Zacks Consensus Estimate for 2013 has increased 2.3% to $2.18 over the same time period, as half of the four earnings estimates moved upward, representing a year-over-year advance of 24.1%.

Impressive Valuation

Walker & Dunlop looks undervalued with a forward P/E multiple of 9.32 and a P/B multiple of 1.10. Furthermore, the PEG ratio is 0.80 based on a five-year EPS growth rate of 11.7%, which is at a 20% discount to the generally accepted yardstick of 1.0 for a fairly valued stock. This further implies a strong future growth potential for Walker & Dunlop.

Walker & Dunlop is a premier commercial real estate financial services company in the U.S. The company originates, sells, and services a wide array of multifamily properties besides offering a range of commercial real estate finance products, including first mortgage loans, second trust loans, supplemental financings, construction loans, mezzanine loans, and bridge/interim loans. While the Capital Markets group specializes in financing commercial real estate for owners and investors across the country, the Principal Investments group provides institutional advisory, asset management, and investment management services relating to debt, structured debt, and equity. The company currently has a market cap of $377.0 million.

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