Fourth quarter earnings created a positive outlook for mortgage real estate investment trusts as agency-only adjustable rate mortgage mREITs performed better than expected, compared to fixed rate mREITs, said a report from FBR Capital Markets said.
FBR predicts that book values for agency mREITs are up approximately 4.3% quarter to date, while book values for hybrid mREITs are up 4.6% quarter to date.
“Although the stocks have continued to show good momentum quarter to date, we think investors need to take into consideration where book values currently stand as the agency group is trading at approximately 92% of book value (lower than the backwards-looking 95%) and the hybrid group is trading at approximately 92% of book value (also lower than the backwards-looking 96%),” the report said.
Annaly Capital Management (NLY) price target was revised to $11.50 from $11, while its earnings per share was slightly adjusted down to 28 cents per share from 29 cents. In addition to its 2014 EPS dropping to $1.15 from $1.20 and its predicted 2015 EPS coming in at $1.27.
“Now having delivered down to 5.0x debt/equity, management thinks there will be opportunistic times at which Annaly will want to reengage back into the agency MBS market in a big way,” the report explained.
On the other side, Two Harbors Investment Corp. (TWO) outperformed and had its price target revised to $11 from $10.75, just a slight premium above FBR’s estimated market-to-market book value of around $10.80.
“Growth in the MSR portfolio remains a key capital allocation to the company’s long-term portfolio positioning,” the report stated. “After purchasing Flagstar’s MSR portfolio for $500 million, the company sees the opportunity to grow this portfolio to at least $1 billion with a high degree of comfort.”
In early stock trading both Annaly and Two Harbors were up on the HW 30 index which tracks the performance of firms vital to the housing economy. This is a sharp division as most other firms are currently losing stock value.
