On Wednesday, Piper Sandler adjusted its outlook on PennyMac Mortgage (NYSE:PMT) Investment Trust (NYSE:PMT) shares, reducing the price target to $14.50 from the prior $15.00. The firm retained a Neutral rating on the stock.
The adjustment followed the release of PennyMac's second-quarter financial results for 2024, which showed earnings that fell short of expectations. PennyMac reported a GAAP EPS of $0.17, which was significantly lower than the analyst's projection of $0.31.
The shortfall was attributed to a decline in fair value within interest rate sensitive strategies, a consequence of heightened market volatility, and smaller-than-anticipated gains in Credit Risk Transfer (CRT) securities. Additionally, the Operating EPS of $0.28 did not meet the analyst's estimate of $0.37, primarily due to a decrease in net investment income.
The company also experienced a reduction in book value. Management has revised its estimated operating run rate for earnings per share downward to approximately $0.33, a slight decrease from the previous $0.35 estimate. This revision is a reflection of the current earnings performance and expectations moving forward.
The report further indicated that PennyMac's Operating EPS continues to trail the $0.40 quarterly dividend payout. This situation points to a potential imbalance between the company's earnings and its dividend commitments.
Despite this, the firm noted that PennyMac is trading near what it considers to be fair value at 0.9x price to tangible book value (P/TBV). Moreover, the company is generating an operating return on tangible equity (ROTE) of less than 10%.
In other recent news, PennyMac Mortgage Investment Trust reported a net income of $15 million, or $0.17 per share for Q2, with a 4% annualized return on common equity and a book value per share of $15.89.
The company issued $217 million in exchangeable senior notes and $355 million in term notes. The firm also projects the total originations market to grow, averaging $1.7 trillion in 2024 and $2.1 trillion in 2025.
PMT's investment focus is on seasoned mortgage servicing rights (MSRs) and GSE lender risk share transactions. The company plans to retain a higher percentage of conventional correspondent loan production in Q3.
The run rate for the next four quarters is projected at $0.33 per share, with the dividend expected to remain stable in the short term, with potential for future increases.
These are recent developments for PennyMac Mortgage Investment Trust, which is positioning itself for potential future earnings increases by capitalizing on the current economic environment and a growing originations market.
InvestingPro Insights
Piper Sandler's recent price target adjustment for PennyMac Mortgage Investment Trust (NYSE:PMT) reflects a cautious stance on the company's future performance. To provide additional context, InvestingPro data shows a compelling dividend yield of 11.06%, which may interest income-focused investors. The company's Market Cap stands at a robust $1.26 billion, with a P/E Ratio of 8.71, indicating a potentially undervalued stock relative to earnings. Moreover, PennyMac's Price to Book ratio as of the last twelve months is 0.89, reinforcing the notion that the stock is trading near its fair value.
Among the InvestingPro Tips, it's noteworthy that PennyMac has a track record of maintaining dividend payments for 15 consecutive years, which may offer some reassurance to shareholders concerned about future dividend sustainability. Furthermore, analysts predict profitability this year, despite expectations of a sales decline and a drop in net income. For investors seeking a more comprehensive analysis, InvestingPro provides additional tips for PennyMac, which can be accessed at https://www.investing.com/pro/PMT. Interested readers can also take advantage of a special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to a total of 7 InvestingPro Tips that delve deeper into the company's financial health and market position.
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