Why Compass Point Is Cutting Targets At Armour Residential REIT

In a report published Wednesday, Compass Point analyst Jason Stewart maintained a Neutral rating on

, while reducing the price target from $4.25 to $4, after the companhy reported 4Q results below expectations. In the report, Compass Point noted, "While we understand ARR's desire to conservatively position the balance sheet for higher interest rates in an uncertain rate and volative environemtn, the simple fact is that the strategy has underperformed." The company reported core EPS for the fourth quarter below the analyst's estimates, with interest income marginally lower and operating expenses slightly higher than expected. BVPS declined about 4.2% QoQ, in-line with the estimate. "As of December 31, the company's Agency portfolio (consisting of fixed rate Agency securities, ARMs and Hybrid ARMs) was valued at $15.3B vs. $13.7B in 3Q14," Stewart said. "In terms of portfolio construction, ARR will continue to adjust their portfolio to gain greater exposure to higher yielding assets (namely seasoned 30 years), while also realigning the hedge portfolio. We expect portfolio repositioning will marginally improve yield, but occur over time," the analyst commented. "Earlier in the quarter, ARR announced 1Q15 monthly dividend payments of $0.04 per share, representing a 20% decline in dividend payments on a quarterly basis…In terms of buybacks, ARR repurchased 4.2mn shares (or approximately 1% of shares outstanding) late in the quarter. However, meaningful share buybacks are unlikely as management stressed liquidity and flexibility of the balance sheet," Stewart pointed out.