UPDATE: Compass Point Downgrades CYS Investments to Neutral After Disappointing Earnings

In a report published Friday, Compass Point downgraded its rating on CYS Investments CYS from Buy to Neutral, and slightly lowered its price target from $14.25 to $13.50. Compass Point noted, “Following 4Q12 earnings, we are downgrading the shares of CYS to Neutral from a Buy rating. In addition, we are lowering our price target to $13.50 from $14.25. Overall, we view 4Q12 as disappointing on both a core earnings and NAV basis. We expect recent increases in CPRs to moderate as driving rates have increased, and as such expect NIM to be near trough levels. However, moderate industry capacity increases and generally low rates will keep CPRs from falling materially. Continued Fed buying will likely keep Agency MBS spreads in check and absolute yields relatively low. Through a full interest rate cycle, we believe investors will be rewarded by owning CYS shares as the company operates a conservative balance sheet and maintains an industry leading operating expense ratio. CYS' operating expense ratio allows the company to generate competitive dividend yields with a short duration portfolio even in a low interest rate environment. However, over the near term we expect shares to trade in a range similar to 4Q12 (average of 0.90x BVPS) and as such see limited capital appreciation opportunity. Our $13.50 twelve month price target represents a modest premium to 4Q12 BVPS of $13.31.” CYS Investments closed on Thursday at $12.29.