2023-04-25 10:30:31 ET
Summary
- The domestic economy appears poised for at least a technical slowdown despite a healthy consumer.
- REITs are challenged by higher funding costs and lower asset values from a year ago.
- I see shares of NYMT as a hold on valuation and with an improved technical picture from last year.
Recession risks are near 65%, according to BofA. While fears of an economic contraction seemed to peak last year, per news story counts, a downturn in Q3 and Q4 is actually the economic consensus today. That could hurt cyclically exposed firms, particularly REITs, amid a tighter lending environment.
I see shares of New York Mortgage Trust ( NYMT ) as a hold today on valuation and with a better momentum picture.
Domestic Recession Probabilities On The Rise
According to Bank of America Global Research, NYMT is an internally managed mREIT that invests in residential mortgage loans, Agency RMBS, and multi-family commercial mortgage-backed securities, as well as mezzanine loans and preferred equity investments. NYMT's objective is to deliver long-term, stable distributions to stockholders over a range of economic conditions through a combination of net interest margin and capital gains. The portfolio is actively managed to maintain dividends and book value stability.
The New York-based $932 million market cap Mortgage Real Estate Investment Trusts industry company within the Financials sector has negative trailing 12-month GAAP earnings and pays a very high 15.7% dividend yield, according to The Wall Street Journal.
Late last year, I had a sell rating on the stock, and shares have drifted lower since then, but the total return considering the large dividend has been modestly positive. In February, NYMT missed on earnings, but the per-share loss narrowed from -$0.33 in Q3 2022 to just -$0.12 in Q4 last year. What's more, net interest income rose sequentially.
Key for mortgage REITs, its book value per share fell 4.7% to $3.97 as declining asset prices hurt the firm value. The bottom line miss was largely driven by net unrealized losses on its residential loans and securities portfolio amid higher market interest rates and credit spreads that widened modestly.
A bearish cue to the market came when the management team announced a 1-for-4 reverse stock split that went into effect on March 9. Overall, with slow investment activity, higher funding costs, but low leverage on its balance sheet, the outlook is not very favorable. A bright spot for shareholders is that the firm authorized a $246 million share repurchase plan last month, an upsize to the original $200 million amount from when it issued Q4 results.
On valuation , analysts at BofA see earnings returning to the black this year with robust growth in 2024 and '25 (keep in mind the numbers in the below graphic were made pre-reverse split). The Bloomberg consensus forecast is about on par with what BofA projects. Dividends, meanwhile, are expected to rise over the coming quarters.
NYMT's latest dividend is payable on April 26 in the amount of $0.40/share, which was in line with previous quarters. With a forward operating P/E now just above 13, that is a 50% premium to the sector median. If we assume $1 of normalized NTM EPS with a 10x multiple (a discount to the industry median), then the stock should be near $10, post-split. That's about 0.6x its latest book value per share.
NYMT: Earnings, Valuation, Dividend Forecasts
NYMT: High Yield, Valuation May Improve In 2024, '25
Seeking Alpha
Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q1 2023 earnings date of Wednesday, May 3 AMC with a conference call the following morning. You can listen live here .
Corporate Event Risk Calendar
The Technical Take
In December, I noticed that NYMT had broken an uptrend line off its October low. Shares inched lower from there but then rose back to noted resistance near $13. Sellers once again emerged, and the stock dipped to retest the September/October nadir just above $8. So, we have a trading range on our hands.
With the stock near fair value but stuck in the middle of the range, there is nothing too exciting here on the chart, but that's an improvement from last December. I would be a dip buyer in the $8s, then sell on an approach to $13. But with a downtrending long-term 200-day moving average, the bears may be still in control. A bullish breakout above $13 along with an inflection higher in the 200dma would help support a reversal, but that remains to be seen.
NYMT: Downtrend May Be Ending, Improved Technicals
The Bottom Line
I continue to straddle between a sell and hold rating. I am upgrading the stock today based on its new valuation which appears fair and a chart that is also in a holding pattern.
For further details see:
New York Mortgage Trust: BVPS Drops, But Bad News Getting Baked In (Rating Upgrade)