Analyst: American Capital Mortgage Investment Still Worth $20/Share

In a report published Monday, Compass Point analysts maintained a Neutral rating on

, with a price target of $20. American Capital Mortgage reported its 1Q15 core earnings short of expectations. The shortfall was attributed to a higher servicing loss and lower-than-expected contribution from dollar roll income. The company's BVPS was, however, up 0.40 percent quarter on quarter and ahead of the Compass Point estimate. The company's long-term growth prospects are restricted by the volatility in interest rates. "The longer-term outlook was conservative in a volatile rate environment fraught with uncertainty, while growth opportunities in both the non-agency and servicing portfolios appear limited at best in the short term," the analysts stated. The analysts expect American Capital Mortgage's shares to be range bound until the company's diversification plans become clear. "MTGE shares are trading at approximately 80% of 1Q15 BVPS as diversification efforts have proved less than fruitful thus far. Further investments in servicing and CRT opportunities should ultimately lead to a premium valuation versus securities-only peers, but the period to bring these initiatives to scale is uncertain," the analysts mentioned. The EPS estimate for FY15 has been reduced from $2.48 to $2.00.