PennyMac Mortgage: Zacks’ Bear of the Day Play

PennyMac Mortgage Investment Trust (PMT) is a REIT that invests primarily in residential mortgage loans and mortgage-related assets. The company is an externally managed by PNMAC Capital Management, an investment adviser.

The company invests in residential mortgage-related opportunities including mortgage loans, mortgage servicing rights and mortgage-backed securities. It invests in both newly originated prime mortgage loans and distressed mortgage loans.

Disappointing Fourth Quarter Results 

The company reported its Q4 results in February. Net income for the quarter was $26.5 million, down 52% from the prior quarter.

Net investment income was $53.1million, down 50% from the prior quarter.  ROE declined to 7% from 14% in the prior quarter.

The company reports results through two segments– Investment Activities and Correspondent.  Investment Activities segment suffered due to the impact of lower current and expected home prices and a seasonal slowdown in loans.

The Correspondent Production segment also had to struggle due to highly competitive correspondent market for newly originated conventional conforming loans.

Downwards Revisions

Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.

Zacks Consensus Estimates for the current and next fiscal year now stand at $2.58 per share and $2.73 per share, from $2.78 per share and $3.10 per share, before the results.

Declining estimates sent PMT back to Zacks Rank # 5 (Strong Sell).

The Bottom Line

Adverse pricing conditions in the distressed loans market and a highly competitive origination environment will continue to pose headwinds for the stock.

Further, a brightening economy and rising rate environment does not bode well for the profitability of the company.

Better Play in the Industry?

Investors looking for a better opportunity in the Real Estate operations industry could consider Jones Lang Lasalle (JLL) a Zacks Rank# 2 (Buy) Rated stock.
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