Piper Sandler has adjusted its outlook on Ready Capital Corp. (NYSE: NYSE:RC), reducing the price target to $8.00 from the previous $9.50, while keeping a Neutral stance on the stock.
The adjustment followed Ready Capital's announcement on Friday that it had decreased its quarterly dividend by 17% to $0.25.
The reduction is the third in the past year and comes after a period where Ready Capital's core earnings did not cover its dividend for six straight quarters.
The firm's analyst noted that the dividend cut was anticipated to some extent, as it would allow near-term earnings to better align with the dividend level. Despite discussions by Ready Capital's management about a strategy to improve earnings and achieve over 10% return on equity (ROE), the analyst believes that the company is still several quarters away from reaching these targets.
The new price target is based on approximately 65% of Piper Sandler's second-quarter 2025 book value estimate for Ready Capital.
The reduced target reflects a lowered confidence in the company's near-term earnings and credit outlook, especially after the latest dividend reduction.
The dividend cut and subsequent price target revision highlight ongoing challenges for Ready Capital in meeting its earnings goals.
In other recent news, Ready Capital Corporation reported a mixed second quarter for 2024, with strategic acquisitions and improved credit metrics suggesting potential growth in 2025.
Despite reporting a quarterly GAAP loss per common share of $0.21, the company's small business lending platform experienced strong growth, surpassing SBA 7(a) loan origination targets.
Ready Capital completed two strategic acquisitions, including Madison One Company and Funding Circle US platform, and plans to enhance earnings by reallocating low-yield assets and exiting residential mortgage banking.
Revenue from net interest income, servicing income, and gain on sale increased by 9% quarter-over-quarter. However, the balance sheet reflected a decrease in book value per share, mainly due to losses on loans and REO liquidation. The company anticipates additional operating costs of $8 million over the next two quarters due to the Funding Circle acquisition.
Ready Capital is focusing on long-term earnings power and aims to reach a 10% return on equity target and a $1.5 to $2 billion run rate in the next 12 to 24 months. The company expects a rebound in the multifamily sector and continued tax benefits related to loan sale activity.
InvestingPro Insights
Amidst the backdrop of Ready Capital Corp's (NYSE:RC) recent dividend cut and price target revision by Piper Sandler, InvestingPro data and tips offer additional insights into the company's financial health and performance. With a market capitalization of approximately $1.3 billion and a high dividend yield of 15.56% as of the last twelve months ending Q2 2024, Ready Capital appears committed to returning value to shareholders, having maintained dividend payments for nine consecutive years. This is particularly noteworthy given that the company's net income is expected to drop this year, as indicated by InvestingPro Tips.
InvestingPro Tips also reveal that Ready Capital is trading near its 52-week low and that the stock's Relative Strength Index (RSI) suggests it is in oversold territory, which could interest value investors looking for potential rebound opportunities. However, it's important to note that five analysts have revised their earnings downwards for the upcoming period, reflecting concerns over the company's near-term profitability. On the positive side, Ready Capital's liquid assets exceed its short-term obligations, a sign of good liquidity management.
For readers interested in a deeper dive into Ready Capital's financials and future outlook, there are additional InvestingPro Tips available at Investing.com/pro/RC. These insights could prove invaluable for investors making decisions in light of the company's current challenges and efforts to align its earnings with shareholder returns.
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