European Expansion And Tech Advances Will Strengthen Future Prospects

Key Takeaways

• Expansion into international markets and strategic partnerships in small business lending and affordable housing support diversified revenue and earnings growth.
  
• Technological advancements in appraisal and small-balance lending enhance operational efficiencies and revenue growth, potentially boosting net margins.
  
• Operational challenges and strategic shifts could impact revenue growth and stability due to increased credit risks, rising borrowing costs, and decreased interest earnings.

Catalysts

Through its subsidiaries, originates, sells, and services a range of multifamily and other commercial real estate financing products and services for owners and developers of real estate in the United States.

• Expansion into international markets, particularly Europe, positions Walker & Dunlop for revenue growth by tapping into new client bases and deploying capital from foreign investors. This can increase international revenue streams and contribute to earnings growth.
  
• The introduction of capital market capabilities in the hospitality sector provides opportunities for revenue diversification and growth, which could enhance net margins given successful integration with existing services.
  
• The rebound in commercial real estate transaction volumes is promising for revenue growth as it boosts origination fees and mortgage servicing rights (MSR) revenues, both of which directly impact earnings.
  
• Technology advancements in appraisal and small-balance lending businesses show strong revenue growth potential and operational efficiencies, which could lead to improved net margins and scale earnings.
  
• Strategic partnerships and expansions in small business lending and affordable housing can drive substantial increases in revenues from new business sectors and thus support stronger earnings growth.

Walker & Dunlop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Walker & Dunlop's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.1% today to 15.6% in 3 years time.
• Analysts expect earnings to reach $211.5 million (and earnings per share of $6.22) by about March 2028, up from $105.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.0x on those 2028 earnings, down from 27.6x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.

Walker & Dunlop Future Earnings Per Share Growth

Risks

• The Federal Reserve rate cuts did not materialize as expected, and the long bond surged, which could challenge borrowing costs and potentially impact transaction volumes and revenue growth.
  
• The company had to buy back several loans from the GSEs due to credit mistakes and fraud schemes, impacting credit risk management and potentially leading to increased costs and lower margins.
  
• Repurchases of certain loans and related expenses indicate ongoing operational risks, which might influence net margins and future earnings stability through increased provision-related expenses.
  
• The decision to exit the Walker & Dunlop Affordable Preservation business highlights strategic shifts due to the capital requirements and return profile, which might impact the segment's revenue contribution.
  
• Interest earnings on corporate cash and escrow deposits are expected to decrease in 2025 as short-term rates have already lowered, potentially affecting net earnings and cash flow growth.

Valuation

• The analysts have a consensus price target of $108.333 for Walker & Dunlop based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $211.5 million, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 8.1%.
• Given the current share price of $86.28, the analyst price target of $108.33 is 20.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.