On Monday, B.Riley reiterated its Buy rating on PennyMac Mortgage (NYSE:PMT) Investment Trust (NYSE:PMT) stock with a steady price target of $16.00. The firm's analysis followed PMT's third-quarter financial results for 2024 and subsequent updates to their model.
PennyMac Mortgage Trust disclosed a GAAP EPS of $0.36 and a core EPS of $0.29 for the third quarter, which was below B.Riley's estimate of $0.36 and nearly unchanged from the second quarter of 2024.
The company's book value experienced a marginal decrease from $15.89 to $15.85. Despite this, the total economic return for PMT is reportedly surpassing that of its peers. B.Riley has adjusted its full-year 2024 core EPS forecast from $1.23 to $1.18, acknowledging a dip in profitability from third-quarter interest rate strategies and fine-tuning the fourth-quarter predictions.
Nevertheless, the firm maintains its forward estimates, citing optimism that PMT's interest rate-sensitive strategies, which constitute about two-thirds of the company's total capital, will improve from an 8% return on equity in the third quarter.
PennyMac Mortgage Trust's management has indicated a future target of a 12% return for this segment and has raised the 12-month run-rate EPS guidance from $0.33 to $0.37. Additionally, there is an expectation that the current $0.40 dividend will eventually be covered by the core EPS.
B.Riley suggests that investors consider the significant potential benefits from the current economic environment, which includes a positive steepening yield curve and decreasing short-term rates, from which PMT is well-positioned to gain.
The firm also notes that PMT's access to the capital markets is improving and identifies a larger growth opportunity in the non-agency market. B.Riley expects the dividend to remain at $0.40 per quarter, equating to an 11% yield, and anticipates improvements in correspondent margins and origination volume expansion, as well as benefits from further Federal Reserve rate cuts.
The firm recommends buying PMT shares at the current price-to-book ratio of 0.87, highlighting the company's history of generating high-quality returns.
Lastly, B.Riley points out the operational synergies between PennyMac Mortgage Trust and PennyMac Financial (NYSE:PFSI) Services, which they believe are not fully recognized, solidifying PMT's position as a leading correspondent unit in the U.S. market.
In other recent news, PennyMac Mortgage Investment Trust (PMT) reported solid performance in the third quarter of 2023, with a net income of $31 million, or $0.36 per diluted share.
The company's strategic refinancing of term notes and investments in mortgage servicing rights (MSRs) position it for continued growth, despite a slight decrease in the fair value of its MSR portfolio. PMT also expects total mortgage originations to reach $2.3 trillion by 2025, supported by declining mortgage rates.
In addition, PMT refinanced $457 million in term notes, replacing them with $514 million in new notes at lower costs and longer durations. Investment in MSRs doubled from the previous quarter, with $90 million allocated in Q3. The company is also exploring opportunities in private label securitization, with a deal expected to close this quarter and another shortly after the New Year.
Moreover, PMT projects a $0.37 average earnings run rate per share over the next four quarters, with potential to increase to $0.40 if the yield curve steepens. Management aims to achieve returns above 10% on common equity while balancing credit-sensitive and interest rate-sensitive strategies. These recent developments reveal PMT's strategic efforts to navigate market challenges and lay the groundwork for future growth.
InvestingPro Insights
Recent data from InvestingPro adds depth to B.Riley's analysis of PennyMac Mortgage Investment Trust (NYSE:PMT). The company's market cap stands at $1.18 billion, with a P/E ratio of 9.59, aligning with B.Riley's view of an attractive valuation. PMT's price-to-book ratio of 0.85 as of the last twelve months ending Q3 2024 supports B.Riley's recommendation to buy at the current price-to-book level.
InvestingPro Tips highlight PMT's high shareholder yield and significant dividend payments, which corroborate B.Riley's emphasis on the company's 11% dividend yield. The tip noting that PMT has maintained dividend payments for 15 consecutive years underscores the reliability of its dividend strategy, a key factor in B.Riley's positive outlook.
Additionally, InvestingPro data shows a robust revenue growth of 57.27% over the last twelve months, which may contribute to the firm's optimism about PMT's future performance. The company's gross profit margin of 85.03% indicates strong profitability in its core operations, potentially supporting B.Riley's expectations for improved returns from interest rate-sensitive strategies.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into PMT's financial health and market position.
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