UPDATE: MLV & Co Initiates Coverage on Hatteras Financial Corp on Unwarranted Large Discount

In a report published Tuesday, MLV & Co analyst Richard Eckert initiated coverage on Hatteras Financial Corp. HTS with a Buy rating and $21.00 price target. In the report, MLV & Co noted, “We are initiating coverage of HTS with a Buy rating and $21 price target. Currently trading at steep discounts to both reported and (MLV) projected book values, we believe the company is being punished for doing all the right things. Granted, HTS caught investors by surprise by reporting a 21% decline in book value and an increase in leverage to 9.3x at the end of Q2 2013. The drop in book value was attributable to basis widening, a byproduct of the volatility gripping the bond markets in Q2. That volatility has persisted, but we expect it to eventually subside. Additionally, we feel investors are ignoring mitigating factors, such as slowing prepayment speeds, which would ease the pressures on both asset yields and book value. We believe that as these considerations begin to inform investor expectations, the large discount between book value, which we have estimated at $21 twelve months out, and current market value will narrow. And, at the low-teens dividend yields we anticipate (based on current prices), investors would be paid to wait.” Hatteras Financial Corp. closed on Monday at $18.77.