FBRT - Rithm Capital's Updated Sector Comparative Analysis - Part 1 (Includes Recommendation For 19 Peers As Of 3/15/2024)

2024-03-20 01:46:44 ET

Summary

• Part 1 of this article compares RITM’s recent investment composition, leverage, hedging coverage ratio, quarterly BV, economic return (loss), and current valuation to 19 mREIT peers.
• Due to what has occurred during the first quarter of 2024 (fluctuating rates/yields), understanding the composition of RITM’s MSR/investment and derivatives portfolio is crucial in understanding current/future performance.
• My current RITM BV projection and updated price target are in the “Conclusions Drawn” section. RITM is currently deemed undervalued (buy recommendation).
• I also provide a list of the mREIT-covered stocks I currently believe are undervalued (a buy recommendation), overvalued (a sell recommendation), or appropriately valued (a hold recommendation).
• Part 1 also performs a detailed analysis of RITM’s MSR and derivatives portfolios as of 12/31/2023. This includes RITM’s projected performance during the first quarter of 2024 (through 3/15/2024).

Focus of Article:

The focus of PART 1 of this article is to analyze Rithm Capital Corp.'s ( RITM ) recent results and compare several of the company's metrics to 19 mortgage real estate investment trust (mREIT) peers. This analysis will show past and current data with supporting documentation within four tables. Table 1a will compare RITM's investment composition, recent leverage, hedging coverage ratio, and change in investment portfolio size to the 19 mREIT peers. Table 1b will compare RITM's BV, economic return (loss), and premium (discount) to estimated CURRENT BV using stock prices as of 3/15/2024 to the 19 mREIT peers. Table 2a will show an overview of RITM's investment portfolio, Table 2b will provide a portfolio overview of RITM's recently closed acquisition of Sculptor Capital Management Inc. ("SCU"), and Table 2c will provide some details regarding the company's largest current driver of earnings, its mortgage servicing rights ("MSR") sub-portfolio. Table 3 will show RITM's recent hedging coverage ratio over the prior 5 quarters (only contributor/team to provide continuous detailed hedging metrics).

I am writing this 2-part article due to requests that such an analysis be specifically performed on RITM versus its mREIT peers at periodic intervals. This article also discusses the importance of understanding the composition of RITM's investment and derivatives portfolios regarding projecting the company's future quarterly results as interest rates/yields fluctuate. Understanding the characteristics of a company's investment and derivatives portfolios can shed some light on which companies are overvalued or undervalued strictly per a "numbers" analysis. This is not the only data that should be examined to initiate a position within a particular stock/sector. However, I believe this analysis is a good "starting-point" to begin a discussion on the topic. ...

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