On Monday, an analyst from Jones Trading adjusted the price target on shares of Dynex Capital (NYSE: NYSE:DX) to $13.25, down from the previous $13.25, while reaffirming a Buy rating on the stock. Dynex Capital experienced a total economic loss of 2.4% in the second quarter of 2024, attributed to spread widening and heightened market volatility. Despite these challenges, earnings available for distribution (EAD) were reported at $0.26 per share, surpassing the analyst's projection of $0.18. This figure includes amortized hedge gains, which contributed approximately $25.5 million, or $0.38 per share, to the EAD.
The company's book value saw a slight decline, dropping to $12.50 from $13.20, marking a 5.3% decrease quarter over quarter. This was primarily due to a capital raise that took place on June 5. However, as of the market close on July 19th, the estimated book value had seen an approximate 2% increase to $12.75. Dynex Capital's shares are currently trading at a marginal discount to book value, aligning closely with its agency peers.
Jones Trading believes that Dynex Capital will likely trade nearer to its peers as the company utilizes capital at historically wide spreads. The firm also anticipates that realized hedge gains, which contribute to taxable income, will continue to support the company's quarterly dividend of $0.39 throughout 2024 and potentially beyond. This is despite the pressures on net interest income (NII) and traditional EAD metrics, which may persist until financing costs decrease in line with anticipated monetary policy relaxation.
The new price target of $13.25 is based on approximately 1.04 times the estimated book value per share (BVPS) of $12.75 and a pro-forma dividend yield of 11.8%. If this target is met, investors could see a 20% expected total return.
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