NOL`S
The $6.3bn of Federal NOLs are not subject to any annual limitations, and begin to expire in 2031•At a 10% discount rate, this tax asset should be worth ~$6.00-$6.50 per share on a present-value basis
KURS
More importantly, a proper financial analysis suggests that COOP should indeed produce excess normalized returns on capital, the platform has franchise value, and COOP should trade at a premium to its net tangible assets
CONTRA
equity value is only ~$800mm and its float ~$700mm –this liquidity is too low for an uncertain stock I may need to trade out of•7x of LTM leverage, high operating volatility, and constantly evolving regulatory dynamics means that there’s real risk of this stock going to $0•
The high degree of business and industry complexity mean that it’s impossible to underwrite a high conviction base case scenario•The low liquidity, real downside risk, and high complexity combine to ensure that it’s not worth the effort to dig deep here
CHANCEN
Simplistic probability tree:•Tail-risk: industry issues/leverage drive the stock to $0 (10% chance)•
Downside: no earnings improvement, $0.75 FCF ÷12% yield = ~$6 (30% chance)
•Base: earnings recovery, $3.69 FCF ÷12% yield = ~$31 (50% chance)•
“Blue sky”: full earnings recovery, $4.45 FCF ÷12% yield = ~$37 (10% chance)•
Option expected value: $21 ($9.10 “option” is priced at ~40 cents on the dollar)Once you acknowledge that COOP is a call option on several realistic operational improvements, you should (1) be fine
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