On Friday, Ready Capital Corp. (NYSE:RC) was downgraded from Buy to Neutral by Ladenburg Thalmann, with the firm also removing its forward price target for the stock. The decision came after observing significant loan reserving in the first quarter of 2024 and a continued decline in various asset quality metrics. The analyst believes that the share price of Ready Capital will likely remain stagnant throughout the ongoing downturn in the commercial real estate market.
The analyst noted that Ready Capital is expected to continue increasing its reserves in the upcoming quarters, which could hinder the company's ability to meet its target of a 10% annual return on equity from distributable earnings. The distributable return on equity (dROE) for the first quarter stood at 8.6%, a slight improvement from 7.5% in the fourth quarter of 2023. However, this performance is still short of the company's goal.
Despite Ready Capital management's efforts to implement various initiatives aimed at boosting the annual dROE by 400 basis points, the analyst is skeptical. The initiatives are predicted to be negated by the rising expenses associated with maintaining asset quality. This outlook suggests that the company may face challenges in achieving its financial objectives in the years 2024 and 2025.
The analyst's comments reflect concerns over Ready Capital's financial performance amidst a challenging period for the commercial real estate sector. With the removal of the price target and the downgrade to Neutral, investors are being cautioned about the potential for limited growth in the company's share price in the near term.
InvestingPro Insights
Ready Capital Corp. (NYSE:RC) is currently navigating a complex market environment, as reflected by recent analyst downgrades. For investors seeking a deeper understanding of the company's financial health, InvestingPro provides additional context with real-time data and expert insights. The company boasts a high dividend yield of 13.86%, which may appeal to income-focused investors, despite a recent 25% dividend cut. Additionally, Ready Capital's P/E ratio stands at a modest 6.25, suggesting that the stock is trading at a lower earnings multiple, which could indicate undervaluation relative to near-term earnings growth.
Among the InvestingPro Tips, two notable mentions are that Ready Capital has a high shareholder yield and has maintained dividend payments for 9 consecutive years. These factors might be particularly relevant for investors who prioritize steady income streams. Moreover, the company's liquid assets exceed short-term obligations, which underscores its ability to meet immediate financial liabilities. For those interested in exploring additional insights, InvestingPro offers more tips that could further inform investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Investors should also note that Ready Capital's market capitalization is currently $1.51 billion, and while the revenue has seen a decline of over 35% in the last twelve months as of Q1 2024, the company's gross profit margin remains high at 85.16%. This data point suggests that despite revenue challenges, Ready Capital is maintaining profitability in its operations. With the next earnings date on August 7, 2024, investors will be keenly watching for signs of recovery or further headwinds.
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