Wells Fargo on Tuesday upgraded PennyMac Financial Services ( NYSE: PFSI ) to Overweight from Equal Weight as the backdrop for the mortgage industry is now "more favorable".
Analyst Michael Kaye noted that mortgage rates improved -104bps from the peak and expects further improvement as inflation pressures wane.
"We are not expecting a return to the 2020/2021 boom period, but we believe the worst is behind the industry," he said. "The risk is that we are early and that the interest rate drop reverses or remains stubbornly high."
Wells Fargo views PennyMac ( PFSI ) as one of the best-run mortgage lenders, adding that the risk/reward is favorable and the stock will move closer to book value as fundamentals improve after trading at a discount.
The brokerage also raised 2024 EPS estimates by $0.20 to $9.90 on better volume and GOS margin.
Wells Fargo raised its price target on PennyMac ( PFSI ) to $75 from $54 (potential upside of 31.4% to last close).
Shares of the mortgage company, which gained 18.2% in the last six months, rose as much as 4.4% on Tuesday.
While sell-side ratings on PennyMac ( PFSI ) are bullish, SA Quant rates the stock Hold .
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PennyMac upgraded to Overweight at Wells Fargo as mortgage rates improve