With the Risk Retention rule scheduled to be fully implemented in December 2016, Nomura’s Brock Vandervliet believes Invesco Mortgage Capital Inc IVR is well positioned “as a CMBS issuer/sponsor and buyer of the equity tranche of third-party securitizations.”
Vandervliet upgraded the rating on the company from Neutral to Buy, while raising the price target from $14 to $16.
Three Catalysts
The analyst mentioned that there were three key catalysts to the current upgrade.
Firstly, Vandervliet believes the company now has a “leaner, higher return portfolio and lower opex following Q1.”
Secondly, Invesco Mortgage witnessed a 3.5 percent book value decline in Q1, although management mentioned during their earnings call that “current book value recovered to a level consistent with year-end, or $17.14.”
Vandervliet believes this statement “puts a more positive spin on book value performance.”
Thirdly, the stock is about 80 percent of the most recent book value. Although Invesco Mortgage’s shares are no longer at their lows, they are the cheapest among the Hybrid REITs.
The EPS estimates for 2016 and 2017 have been raised from $1.60 to $1.68 and from $1.57 to $1.61, respectively.
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