Rithm (RITM) Rises 1.6% Since Q1 Earnings Beat: Growth Ahead?

Core Viewpoint - Rithm Capital Corp. reported strong first-quarter 2024 results, driven by solid performance in its servicing portfolio and a recovery in gain on sale margins, although they have not yet reached last year's levels [1][4]. Financial Performance - Adjusted earnings for Q1 2024 were 48 cents per share, exceeding the Zacks Consensus Estimate of 41 cents, and reflecting a 37.1% year-over-year increase [5]. - Revenues reached nearly $1.3 billion, a 52.8% increase year-over-year, surpassing the consensus mark by 18.7% [5]. - Net servicing revenues amounted to $554.4 million, up 69.3% year-over-year, and exceeded the Zacks Consensus Estimate by 50.2% [6]. - Interest income increased by 29.3% year-over-year to $448.2 million, although it fell short of the consensus estimate by 2.4% [6]. - Gain on originated residential mortgage loans rose 36.9% year-over-year to $149.5 million, beating the consensus estimate by 41% [6]. - Total expenses were $845.3 million, a 27.1% increase year-over-year, primarily due to higher interest expenses and compensation costs [7]. Segment Performance - In the Origination and Servicing segment, net servicing revenues were $490.8 million, up from $311.9 million a year ago, with pre-tax income rising to $408.1 million from $164 million [8]. - The Investment Portfolio segment saw net servicing revenues increase to $63.5 million from $15.6 million year-over-year, with a pre-tax loss narrowing to $15.4 million from $64.7 million [9]. - Mortgage Loans Receivable revenues advanced to $73.7 million from $58.3 million, with pre-tax income increasing to $41.1 million from $8.3 million [10]. - Asset Management generated total revenues of $75.9 million, with a pre-tax loss of $29.7 million [11]. Strategic Initiatives - The company is considering spinning off its mortgage business or pursuing an initial public offering, believing the business is undervalued [3]. - Rithm Capital hedged most of its mortgage servicing rights risk during the quarter, which is expected to enhance stability amid market volatility [3]. Financial Position - As of March 31, 2024, Rithm Capital had cash and cash equivalents of $1.14 billion, down from $1.29 billion at the end of 2023 [12]. - Total assets increased to $42.12 billion from $35.31 billion at the end of 2023, while debt rose to approximately $29.5 billion from around $24 billion [12]. - Total equity increased to $7.2 billion from $7.1 billion at the end of 2023 [12]. Capital Deployment - The company did not repurchase any shares during the quarter but has a $200 million share repurchase program in place through December 31, 2024 [14]. - A quarterly common dividend of 25 cents per share was paid, totaling $120.9 million [14].