On Wednesday, Jones Trading maintained a Hold rating on Sachem Capital Corp . (NYSE: NYSE:SACH) after the company's earnings per share (EPS) fell short of expectations. The firm's analyst pointed out that Sachem Capital reported a GAAP EPS of ($0.09), which was notably below their estimate of ($0.01) and the consensus mean of $0.10. However, the company did achieve an adjusted EPS of $0.09, primarily due to an $8.5 million credit loss provision taken during the quarter.
The deviation from the expected GAAP EPS was attributed to the Current Expected Credit Loss (CECL) provision, which was significantly higher than Jones Trading's anticipated $2.4 million. As a result, credit reserves now represent 280 basis points of Sachem Capital's total loan portfolio. Notably, about half of these reserves are associated with office properties, which made up 12.3% of the portfolio in the second quarter of 2024.
Despite the current $14.4 million in CECL reserves, Jones Trading does not foresee substantial losses in Sachem Capital's fix-and-flip loan portfolio. This outlook is based on the portfolio's short durations and conservative loan-to-value ratios. As of the second quarter, $132 million, or 30.2% of the loan portfolio, consisted of mortgages receivable that had matured but not yet been repaid in full or extended.
This situation has been exacerbated by labor shortages and extended project timelines, particularly in the Northeast U.S. Additionally, the tightening of lending standards and regional banking pressures has led to a decrease in the availability of take-out financing for fix-and-flip projects.
Jones Trading expects Sachem Capital's management to adopt a cautious stance on new loan originations while focusing on protecting the existing loan portfolio. On the earnings call, Sachem Capital reported that its cash position has improved during the quarter to approximately $30 million due to repayments, an increase from $10.6 million as of June 30. The firm anticipates that additional loan repayments and fees will be reserved for the company's upcoming note maturity on December 30, 2024, which amounts to $34.5 million.
In other recent news, Sachem Capital has announced its financial results for the second quarter of 2024. The company reported revenues of $15.1 million, largely contributed by origination fees, and a net loss of $4.1 million for common shareholders. Despite these challenges, Sachem Capital has maintained a disciplined financial approach, focusing on capital protection and avoiding expensive borrowing.
The firm's balance sheet shows total assets of $586.3 million, including $10.6 million in cash and cash equivalents. Among recent developments, Sachem Capital plans for a net portfolio growth of approximately $20 million for the remainder of the year and is considering share buybacks and potentially increasing its credit facility with Needham Bank.
CEO John Villano highlighted the company's reluctance to raise inefficient debt and a preference to shrink the balance sheet in the current debt market climate. The firm has also reduced dividends as part of a cash conservation strategy, with hopes of returning to stronger dividends in the future.
Sachem Capital's strategy in the coming months will likely focus on maintaining liquidity, managing its loan portfolio effectively, and exploring prudent opportunities to leverage its financial position.
InvestingPro Insights
As investors consider the analysis by Jones Trading on Sachem Capital Corp. (NYSE: SACH), it's pertinent to look at some current metrics and insights from InvestingPro to better understand the company's financial health and market position. Notably, Sachem Capital's market capitalization stands at approximately $106.99 million, reflecting its size within the financial sector. The company's P/E ratio, which helps gauge the market's valuation of a company, is currently at 8.78, with an adjusted P/E ratio over the last twelve months of 8.37, suggesting a potentially undervalued stock relative to earnings.
InvestingPro Tips indicate that while analysts have revised their earnings estimates downwards for the upcoming period, Sachem Capital is expected to be profitable this year and has been profitable over the last twelve months. Moreover, the company pays a significant dividend to shareholders, with a notable dividend yield of 13.68%. This could be particularly attractive to income-seeking investors, especially as the stock is trading near its 52-week low, which may present a buying opportunity for those looking for undervalued dividend stocks.
However, investors should be aware of the stock's recent performance, with a price total return of -14.21% over the last month and -24.43% over the last three months. These movements reflect the volatility mentioned in the InvestingPro Tips, which could be a concern for risk-averse investors. For those interested in exploring further, there are additional InvestingPro Tips available on the platform, which could provide more in-depth analysis and guidance on Sachem Capital's prospects.
For those looking to make informed investment decisions, the InvestingPro platform offers additional insights and metrics on Sachem Capital, available at https://www.investing.com/pro/SACH.
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