On Tuesday, Piper Sandler adjusted its price target on shares of Rithm Capital Corp. (NYSE:RITM), increasing it to $12.50 from the previous $10.50. The firm maintained a Neutral rating on the stock.
Rithm Capital reported robust operating results for the first quarter of 2024, with earnings above analyst expectations. The company's higher servicing revenue and gain on sale revenue led to an economic return on equity (EAD) of $0.48 per share, surpassing the anticipated $0.35 and the consensus estimate of $0.39.
The company's GAAP earnings saw a boost from a larger than expected mark up on mortgage servicing rights (MSR), which in turn raised the tangible book value to $11.03, up from $10.74, and exceeding Piper Sandler's estimate of $10.88.
The analyst from Piper Sandler noted that Rithm Capital is poised to generate an earnings run rate between $0.40-$0.50 per share throughout 2024. The firm also anticipates an improving earnings outlook for 2025 as Sculptor, a segment of the company, is expected to become accretive to earnings.
Furthermore, Piper Sandler sees potential for additional upside in its 2025 estimates for Rithm Capital's NewRez segment. This optimism is based on the observation of banks retreating from the market, which has allowed Rithm Capital to record a 33% quarter-over-quarter increase in lock volume.
According to Piper Sandler, these structural shifts in the market could lead to more favorable valuation multiples for Rithm Capital's segments, especially those with larger fee-based revenue streams.
InvestingPro Insights
InvestingPro data reveals that Rithm Capital Corp. (NYSE:RITM) has a market capitalization of $5.53 billion, underscoring its significant presence in the financial sector. The company's P/E ratio stands at a compelling 7.54, with a slight adjustment to 7.29 over the last twelve months as of Q1 2024, suggesting that the stock may be undervalued relative to its earnings. This aligns with Piper Sandler's increased price target, as investors may find the valuation attractive compared to industry peers.
The robust dividend yield of 8.84% as of the most recent data, coupled with the fact that Rithm Capital has maintained dividend payments for 12 consecutive years, reflects a strong commitment to returning value to shareholders. This is particularly appealing to income-focused investors and supports Piper Sandler's positive outlook.
Moreover, Rithm Capital's stock has experienced a high return over the last year, with a 57.37% one-year price total return, indicating strong market confidence and momentum that could continue to attract investor interest. It's also noteworthy that the company is trading near its 52-week high, at 98.81% of the peak, which may signal ongoing investor optimism about the company's prospects.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available on Rithm Capital. These tips delve further into the company's financial health, stock performance, and market position. To access these insights and enhance your investment strategy, visit InvestingPro and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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