On Thursday, JMP Securities adjusted its price targets for two key players in the residential mortgage REIT industry. MFA Financial, Inc. (NYSE:MFA) saw its price target reduced to $12.50 from $13.50, while Redwood Trust, Inc. (NYSE:RWT) experienced a decrease to $8.00 from $9.00. These changes come as part of a broader industry analysis ahead of the upcoming earnings season for mortgage REITs. Industry peer AG Mortgage Investment Trust (NYSE:MITT) currently trades at an attractive P/E ratio of 3.09 and Price/Book of 0.59, according to InvestingPro data, which indicates the stock may be undervalued relative to its peers.
The industry preview, which covers both Agency-focused and Hybrid/Credit Mortgage REITs, notes an expected decline in book values for the fourth quarter of 2024. Agency-focused Mortgage REITs are predicted to have an average book value decline of 5.6%, with Hybrid Mortgage REITs seeing an average decrease of 3.3%. This forecast is based on the companies' performance as of September 30, 2024, where 17 companies in the sector had a combined market cap of approximately $36.0 billion and controlled mortgage-related assets totaling around $372 billion. For investors seeking deeper insights into mortgage REIT valuations and performance metrics, InvestingPro offers comprehensive financial health scores and detailed analysis of over 1,400 US stocks, including key players in this sector.
The earnings season is set to commence before market open on Monday with reports from DX and AGNC, followed by other companies in the subsequent weeks. JMP's preview includes final quarter-end tangible book value estimates, discussions on fourth-quarter dividend announcements and expectations, overviews of total economic returns (TERs), and recent stock price performance assessments for each group.
The fourth quarter of 2024 was marked by significant interest rate hikes and a steepening yield curve, with 2-year Treasury yields increasing by 60 basis points and 10-year Treasury yields by 79 basis points. These movements led to a shift in market expectations for Federal Reserve cuts, with only one or two additional 25 basis point reductions anticipated by the end of 2025. Amidst these conditions, Agency Mortgage-Backed Securities (MBS) spreads widened slightly, while credit spreads generally performed well and tightened.
JMP's analysis indicates that the increase in interest rates and the resulting changes in the yield curve were the primary drivers of the projected book value declines for the fourth quarter. With the earnings reports around the corner, the industry is closely watching these developments to gauge the impact on the residential mortgage REIT sector.
In other recent news, AG Mortgage Investment Trust (MITT) has reported its Q3 2024 financial results, featuring a 3.9% economic return on equity, net interest income of $15.8 million, and earnings per share (EPS) of $0.40. The company also revealed earnings available for distribution (EAD) at $0.17 per share. Alongside these financial results, MITT entered into new equity distribution agreements with BTIG, LLC, JonesTrading Institutional Services LLC, Keefe, Bruyette & Woods, Inc., and Piper Sandler & Co., signaling a potential sale of up to $75 million in common stock.
These recent developments also include MITT issuing two securitizations amounting to $750 million, indicating a strategic focus on the home equity loan market, a sector representing a $2 trillion market opportunity. Despite a slight decline in the investment portfolio by 1.4% to $6.8 billion, the company's resilience against interest rate volatility remains strong. Amid challenges in the housing market, including supply and affordability issues, and a $0.02 loss from Arc Home, MITT's executives maintain a cautious outlook on competition and market dynamics. However, they are optimistic about the potential of the home equity lending segment, which is expected to yield strong returns. These are among the recent developments for AG Mortgage Investment Trust.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.