Ellie Mae Downgraded: As Mortgage Origination Market Matures, Wedbush Sees Limited Upside Potential

As 2018 shapes up to be a disappointing year for mortgage originations, mortgage application processor Ellie Mae Inc (NYSE: ELLI) could struggle to achieve its long-term growth and profitability targets in a maturing sector, according to Wedbush.

The Analyst

Jason Weaver of Wedbush downgraded Ellie Mae shares from Neutral to Underperform and lowered the stock’s price target from $90 to $69.

The Thesis

The outlook for the refinancing market in 2018 looks weak due to rising rates and lower originator profitability, Weaver said in a Thursday note. (See the analyst’s track record here.)

Over the longer term, Ellie Mae’s growth outlook appears limited as well, the analyst said. The company estimates it could grow its market share from around 30 percent to nearly 50 percent by 2022-2023, but this may not be realistic given sector-wide trends, Weaver said. 

“On the surface this is not a large departure from its past growth trajectory, but we have some difficulty bridging the gap in what is an increasingly maturing sector with clients that continue to face profitability and margin pressure.”

Additional upside to the stock is “Increasingly reliant” on an acceleration in variable volume-based revenues, which appear light, the analyst said.

Price Action

Ellie Mae shares were trading down 3.83 percent near the end of Thursday’s trading session.

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