On Thursday, Cherry Hill Mortgage (NYSE:CHMI) experienced a revision in its stock outlook by B.Riley, with the firm adjusting the price target to $5.00 from the previous $5.50, while still endorsing the stock with a Buy rating. The adjustment follows the company's fourth-quarter earnings of 2023 and a recent update to the analyst's financial model.
The firm has revised its fiscal year 2024 core earnings per share (EPS) estimate for Cherry Hill Mortgage from $0.90 to $0.75, while maintaining the fiscal year 2025 estimate at $0.92. The analyst anticipates that the company will maintain a conservative stance until the Federal Reserve's easing cycle becomes more evident, a situation that the latest Fed meeting has hinted at being on the horizon.
Cherry Hill Mortgage is noted for its low leverage, standing at 4.2 times, and agility in the market, which is expected to provide it with an advantage in achieving higher gross returns on equity compared to its peers.
This financial positioning is seen as supportive of the company's dividend sustainability, which currently offers a quarterly $0.15 per share and a yield of 16.3%, outperforming the peer average of 14.8%.
Despite acknowledging Cherry Hill Mortgage's higher operating expenses due to its smaller scale, the firm's portfolio is recognized for its strong metrics, such as portfolio margin, which are considered among the best in the industry. This is attributed to the effective management team at the helm.
The analysis also points out a temporary negative impact on earnings due to the company's strategy to reduce its Series B preferred shares. However, this move is viewed as beneficial for long-term shareholder value, as it positions the company for potential growth.
With expectations of a shift in the Federal Reserve's interest rate policy, including three rate cuts projected for fiscal year 2024 as per the March dot plot, investors are presented with an opportunity to invest in Cherry Hill Mortgage.
The firm is characterized as a pure-play agency mortgage real estate investment trust (mREIT) with minimal credit exposure, trading at 0.81 times its GAAP book value and 0.92 times its tangible book value, which is favorable when compared to its peers' valuations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.