On Thursday, Piper Sandler maintained an Overweight rating on Ellington Residential (NYSE:EARN) with a stable price target of $8. The firm's assessment follows Ellington Residential's core results that outperformed both Piper Sandler's and the broader market's expectations. Additionally, Ellington Residential's adjusted distributable earnings were sufficient to cover its dividend.
The company announced a strategic shift on April 1, moving its focus toward corporate Collateralized Loan Obligations (CLOs) and moving away from its previous agency Mortgage-Backed Securities (MBS) strategy. This transition is expected to be completed by the end of the year. Piper Sandler views this shift positively, anticipating that it will result in reduced volatility in earnings and book value, in contrast to the previous strategy that was highly sensitive to interest rates.
In the first quarter of 2024, Ellington Residential's leverage decreased to 4.8 times from 5.3 times. Piper Sandler predicts a continued decline in leverage. In light of these developments, the firm has raised its core earnings per share (EPS) estimates for 2024 and 2025 to $1.02 and $1.08, respectively, up from $1.00 and $1.02.
The $8.00 price target is set at 100% of Piper Sandler's first-quarter 2025 book value estimate, an increase from the previous 95%. The adjustment reflects confidence in the company's ongoing strategic shift to corporate CLO investments, which Piper Sandler believes should command a higher multiple over time.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.