Investing.com -- Wedbush analysts added Rithm Capital (RITM) to their Best Ideas List in a note Wednesday, highlighting the company as their top pick within the mortgage real estate investment trust (mREIT) sector.
According to Wedbush, Rithm Capital stands out for its unique business model, which sets it apart from its peers and could justify a higher valuation.
"We believe that RITM offers a unique business model that is unlike any of its mREIT peers, which should warrant a differing view on valuation," they wrote.
Rithm Capital currently trades near the higher end of its residential at-risk peers on a price-to-book (P/B) basis.
However, Wedbush analysts argue that this valuation does not fully capture the strength of Rithm’s NewRez business, which represents approximately 45% of the company’s adjusted book value.
They note that NewRez is one of the largest mortgage platforms in the U.S., making it more comparable to servicing-oriented mortgage companies like Mr. Cooper and PennyMac, both of which trade at a P/B premium relative to Rithm.
"We believe that a more appropriate comp group for this segment of the business would be other servicing-oriented mortgage companies like Mr. Cooper (COOP, OP) and PennyMac (PFSI, OP), which both trade at relative P/B premiums," adds the firm.
Looking ahead, Wedbush analysts are optimistic about Rithm’s long-term potential. The company has plans to evolve into a large-scale alternative asset manager, which could provide significant upside to its current valuation.
Additionally, they note that Rithm offers an attractive dividend yield of approximately 8.5%, adding further appeal to the stock as an investment.
In light of these factors, Wedbush raised its price target for Rithm Capital to $14 (albeit from $13 a share), reflecting a 1.13x multiple on the most recent quarter's book value.
"Over the longer term, the company envisions becoming a large scale alt. asset manager, which could provide even greater upside to current levels," according to Wedbush.