Rithm: High Yield Opportunity Not To Be Missed

Core Viewpoint - Rithm Capital Corp. (NYSE:RITM) has experienced a solid recovery, breaking to a new recent high, with four consecutive weeks of recovery before facing selling pressure [2] - The company is diversifying its business beyond its core MSR operations, aiming to improve its valuation multiples over time [2][3] - Rithm anticipates a further valuation re-rating as the market has not fully priced in the prospects of its new growth vectors [2][4] Business Diversification - Rithm has made significant progress in diversifying its business, becoming the second-largest nonbank servicer and the fifth-largest lender in the industry [3] - The company is expanding into Newrez's omnichannel platform, which is expected to enhance market share and drive origination growth [3] - The anticipated reduction in interest rates from September 2024 is expected to improve Rithm's spread and financing costs, supporting its core business [3][4] Financial Metrics and Valuation - Rithm's forward earnings available for distribution (EAD) are not likely to be significantly impacted by interest rate changes, as 96% of its MSRs are in-the-money as of Q2 [3] - The company's EAD multiple of 6.8x is below its 10-year average of 7x, indicating potential undervaluation [8] - Rithm's forward dividend yield of 8.5% remains attractive compared to the lowered 2-year yield of 3.76% [8] Market Sentiment and Stock Performance - The market sentiment appears optimistic, with dip-buyers defending the stock's upward bias, indicating confidence in Rithm's ongoing recovery [9] - Near-term consolidation may occur as the stock tests resistance under the $12 level, but this is not expected to lead to a decisive reversal in momentum [9] - The overall assessment suggests that Rithm's business diversification has not been significantly re-rated by the market, reflecting higher execution risks [8][9]