WD - Walker & Dunlop

[Spekulatius]

WD is a commercial mortgage originator. They went public in 2010 at 10$/share and recently bought a big competitor from Fortress for combination of cash and stock. The firm was a small outfit until a few years ago and then they sized the opportunity to grow in size.The Fortress deal added more scale but it appears that their cost ratios are elevated now, so earnings were flat YoY at 42c/share.

 

The bull case is that there is a big runaway for growth with commercial mortgages and we have a management in place that seems to know what it is doing will grow this somewhat obscure outfit into a major player,  probably making this stock a multibagger from current prices. Valuation is undemanding  at <9x earnings and it does not take too much imagination to see WD returning to be acquisition profit margins, once they squeezed out costs and synergies from the Fortress acquisition.

 

The bear case is that some of the earnings are non-cash and management has overextended themselves with the Fortress deal and profit margins have peaked.

 

FWIW, the things that have been written about Berkadia , the BRK/LUK joint venture in the same business makes me believe that commercial mortgage origination is a very interesting business right now.