JP analyst ups estimates on mortgage REITs

JPMorgan Chase & Co. analyst Andrew Wessel has raised earnings estimates and price targets on several mortgage real estate investment trusts in the wake of the Fed’s latest rate cut.
DEC 17, 2008
By  Bloomberg
JPMorgan Chase & Co. analyst Andrew Wessel has raised earnings estimates and price targets on several mortgage real estate investment trusts in the wake of the Fed’s latest rate cut InvestmentNews, Dec. 15. In a research note released today, he boosted his outlook for MFA Mortgage Investments Inc. of New York and Annaly Capital Management Inc., also of New York, both of which buy mortgages that are backed by Fannie Mae of Washington and Freddie Mac of McLean, Va. The Fed’s decision to cut the target federal funds rate from a range of 0% to 0.25% will mean cheaper funding costs for mortgage REITs, and therefore bigger profits on the mortgages they purchase, Mr. Wessel wrote. The bigger the spread between funding costs and yields on mortgages they purchase, the bigger the profit. Mr. Wessel expects Annaly’s portfolio spread to expand to 3.25% and MFA’s spread to widen to 2.65% by the fourth quarter of 2009. He raised his 2009 earnings estimate for MFA to $1.18 a share, from 88 cents, and increased his projection for Annaly to $3.10 a share, from $2.21 a share. “We believe these estimates may prove conservative,” Mr. Wessel added. And since the two entities invest in agency mortgage REITs, the portfolios hold less risk. “Given the lack of credit risk in these portfolios, the stable access to repo funding and sizable return opportunities, we reiterate our overweight ratings,” Mr. Wessel wrote. Both will benefit from much lower funding costs available in the repo market today, which he estimates will average 30 basis points over London interbank offered rate, which is the rate banks charge each other for overnight, through 2009. Mr. Wessel raised his price target on MFA to $7.50 and Annaly’s to $20. MFA’s shares recently traded at $6.09 a share, while Annaly’s recently changed hands at $15.70 a share. Both REITs offer dividend yields of between 13% and 15%.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.