Why Walter Investment Is Poised to Pull Back

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Walter Investment Management closed down nearly 4% on Friday after Wells Fargo downgraded the loan-servicing company from outperform to market perform.

So what: Along with the downgrade, analyst Joel Houck lowered his valuation range to $35-$40 (from $43-$49), suggesting that the stock is pretty fairly valued at current levels. While value investors might be attracted to the stock's weak performance this year, Houck believes a few headwinds will continue to work against Walter shareholders in 2014.

Now what: Wells Fargo lowered its 2013 EPS estimate from $8.90 to $8.67, and its 2014 forecast from $6.10 to $5.35. "Our downgrade to a Market Perform rating is based on the following: (1) potential impact of rising primary mortgage rates on WAC's origination and HARP business, and the (2) upcoming departure of CFO and COO Charles Cauthen, which could represent a potential distraction for the company," noted Wells Fargo. "Based on these factors, we believe that the near-term upside in shares remains capped."

Of course, with Walter shares now off more than 20% from its 52-week highs and trading at a PEG ratio of 0.5, patient investors might want to pounce on that short-term worry to build a long-term position.

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The article Why Walter Investment Is Poised to Pull Back originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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