UPDATE: Compass Point Initiates Coverage on MFA Financial with Buy Rating, $8.50 PT on Good Market Position

In a report published Monday, Compass Point analyst Jason Stewart initiated coverage on

with a Buy rating and $8.50 price target. In the report, Compass Point noted, “We initiate coverage of MFA Financial

with a Buy rating and a 12 month price target of $8.50. MFA is an internally managed mortgage REIT focused on investing in the residential mortgage backed securities (RMBS) sector. The company has one of the longer operating histories in the group and has successfully positioned the balance sheet to benefit from a recovery in housing. With 43.5% of assets invested in non-Agency RMBS (as of 2Q13) and a conservative credit reserve established, we find the current valuation at 94% of estimated book value per share (BVPS) an attractive entry point for investors. Higher interest rates remain a risk for the Agency portfolio and to a lesser extent the non-Agency portfolio, but a manageable one given the portfolio's concentration in hybrid ARM products. Our top recommendations in the group remain focused on non-Agency credit sensitive mortgage REITs. While the Fed may provide some reprieve from higher rates and wider spreads this week, it is increasingly clear the intermediate trajectory of interest rates is higher. Our $8.50 price target represents a modest premium to 2Q13 BVPS and a dividend yield of 10.4%. If achieved, our price target represents a total return opportunity of 28%.” MFA Financial closed on Friday at $7.31.