UPDATE: J.P. Morgan Downgrades Western Asset Mortgage to Neutral on Appropriate Valuation

In a report published Tuesday, J.P. Morgan analyst Richard Shane downgraded the rating on Western Asset Mortgage Capital Corp.

from Overweight to Neutral, but reiterated the $22.00 price target. In the report, Shane noted, “We change our rating to Neutral. WMC has appreciated roughly 8% since its 4Q12 earnings announcement. We believe the Company is appropriately valued at the current price. As a newly formed MREIT externally managed by Western Asset Management Company (a subsidiary of Legg Mason), WMC has access to WAMCO's extensive sourcing and syndication infrastructure. WAMCO began investing in Agency RMBS in 1974. The relationship provides WMC broad MBS market access and funding stability. We believe WMC's ability to balance QE3-related challenges as well as manage potential tail risks (extension and prepayment) are more pronounced than Agency MREITs such as NLY. As of 4Q12, approximately 93% of WMC's portfolio was invested in spec. pools (i.e., prepay protected). As prepayment risk moderates, the relative value of owning prepayment-protected MBS may diminish.” Western Asset Mortgage Capital Corp. closed on Monday at $23.80.