PennyMac Financial Services (PFSI)

Mortgage banking company PennyMac Financial Services (NYSE:PFSI) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 10.6% year on year to $632.9 million. Its GAAP profit of $3.37 per share was 14.6% above analysts’ consensus estimates.

Company Overview

Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE:PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

PennyMac Financial Services competes with large financial institutions and other independent mortgage producers and servicers, including Rocket Mortgage (NYSE:RKT), Mr. Cooper Group (NASDAQ:COOP), and United Wholesale Mortgage (NYSE:UWMC), as well as the cash windows of government-sponsored enterprises Fannie Mae and Freddie Mac.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. PennyMac Financial Services’s demand was weak over the last five years as its revenue fell at a 7.8% annual rate. This wasn’t a great result, but there are still things to like about PennyMac Financial Services.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. PennyMac Financial Services’s annualized revenue growth of 20.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, PennyMac Financial Services reported year-on-year revenue growth of 10.6%, and its $632.9 million of revenue exceeded Wall Street’s estimates by 9.9%.

Net interest income made up -1.8% of the company’s total revenue during the last five years, meaning PennyMac Financial Services is well diversified and has a variety of income streams driving its overall growth. Nevertheless, net interest income is critical to analyze for banks because they’re considered a higher-quality, more recurring revenue source by investors.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for PennyMac Financial Services, its EPS declined by 11.4% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For PennyMac Financial Services, its two-year annual EPS growth of 49.4% was higher than its five-year trend. This acceleration made it one of the faster-growing banking companies in recent history.

In Q3, PennyMac Financial Services reported EPS of $3.37, up from $1.30 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects PennyMac Financial Services’s full-year EPS of $9.29 to grow 51.2%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

PennyMac Financial Services’s TBVPS grew at an incredible 15% annual clip over the last five years. However, TBVPS growth has recently decelerated to 8.8% annual growth over the last two years (from $68.49 to $81.12 per share).

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, PennyMac Financial Services has averaged an ROE of 15.9%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows PennyMac Financial Services has a strong competitive moat.

We were impressed by how significantly PennyMac Financial Services blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $120.96 immediately after reporting.

Updated: December 3, 2025 at 11:54 PM EST

Before deciding whether to buy PennyMac Financial Services or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are some bright spots in PennyMac Financial Services’s fundamentals, but its business quality ultimately falls short. Although its revenue has declined over the last five years, its growth over the next 12 months is expected to be higher. And while PennyMac Financial Services’s declining EPS over the last five years makes it a less attractive asset to the public markets, its estimated net interest income growth for the next 12 months is great.

PennyMac Financial Services’s P/B ratio based on the next 12 months is 1.6x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $138.57 on the company (compared to the current share price of $133.88).