|
|
|
|
||
CS reiterates on NRZ (thanks to lumpygravy)Re: upgrade.Recent Selloff Creates Attractive Relative Valuation; Reiterate Outperform NRZ shares have fallen almost 10% so far in December and we struggle to come up with a fundamental reason for the decline. While book value is likely modestly lower for the 4th quarter performance remains strong on a relative basis to more securities-focused mREITs. With NRZ now trading at a discount to book value, we see a very attractive risk/reward and reiterate NRZ as our top pick among the mREIT sector. ■ Modest book value declines: We estimate that NRZ's book value is down modestly in the fourth quarter given the combination of decline in 10-year yields (although this is offset by the wider Agency MBS spreads) and wider non-Agency MBS spreads. ■ Deployment of capital: NRZ raised $433 million of capital in early November. While this capital raise could cause near-term earnings dilution as its deployed, we remain confident in NRZ's ability to find attractive investment opportunities. The most likely source of deployment will be into MSRs as NRZ looks to benefit from the profitability/liquidity challenges currently facing the mortgage origination community. The timing of this deployment is uncertain, but NRZ would likely deploy the capital in MBS until the opportunities are sourced. ■ Relative Valuation: Following the recent decline in the stock price NRZ is trading at a 96% discount to our estimate of 4Q book value. This is a 1% discount compared to the mREIT average vs. the long-term average of a 30% premium. This does not make sense in our opinion given the following 4 advantages for NRZ 1) higher expected ROE, 2) less book value sensitivity to Agency MBS volatility and rate increases (which are our base case), 3) the value of call rights not capture in book value, and 4) higher barriers to entry to replicate NRZ's businesses. Cheer up guys, just a blip and a great buying opportunity IMHO. Bob |
return to message board, top of board |
Msg # | Subject | Author | Recs | Date Posted |
15846 | Re: CS reiterates on NRZ (thanks to lumpygravy) - crash | staggman99 | 1 | 12/13/2018 3:15:33 PM |