Javelin Mortgage Shares Hit Hard On Citigroup Note

Shares of Javelin Mortgage JMI are been hit hard by a Citigroup downgrade. Citi cut the stock from neutral to sell and lowered the price target to $11 (20.6 percent downside).

Citigroup’s biggest concern is that short term rates could be higher as soon as 2015. Analyst Donald Fandetti writes about why higher rates can be damaging for REIT value: “A higher 10 yr yield does put a negative bias on book value over time and investor sentiment for yield stocks weakens. A rise in short-term interest rates (i.e. Fed rate hike) is much more impactful as borrowing costs rise faster than asset yields, putting negative pressure on margins/dividends/book values. But the impact can vary depending on hedges and the maturity schedule of short-term debt.”

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The note confirms that if the Federal Reserve does not increase rates by the middle of 2015, Javelin will be an attractive yield play for a longer period of time. The security is currently paying a 13 percent annual dividend yield.

The $11 price target is based on 0.85 times BV. Shares of Javelin were last trading down 2.53 percent to $13.50 on the downgrade.