UPDATE: Sterne Agee Initiates PennyMac Mortgage Investment at Buy on Earnings Outlook

Sterne Agee initiated coverage on PennyMac Mortgage Investment

with a Buy rating and a $26.50 price target. Sterne Agee noted, "Comments from the company suggest that the distressed mortgage market should remain robust and management has indicated that by the end of the year, its correspondent lender is expected to be purchasing $3.5 billion a month in new production. Servicing assets and MSRs should grow in lock step with this, and we would not be surprised to see the company bid on some of the larger, higher quality MSR portfolios that are likely to come up for sale over the next 12 months. Ally indicated it intends to sell $122 billion in relatively clean servicing. We estimate that this portfolio would add $0.50 to $.75 per share to EPS and dividend paying capacity if acquired by PMT." PennyMac Mortgage Investment closed at $23.49 on Tuesday.