Chimera Outlook Moved Up, In-Line With Peers By This Research Firm

• Chimera Investment Corporation CIM shares are down 12 percent year-to-date, having declined steadily since April.
• Barclays’ Mark C. DeVries upgraded the rating on the company from Underweight to Equal-Weight, which maintaining the price target at $14.
• While there is better clarity into Chimera’s holdings and ability to cover dividends going forward, the company has a more positive earnings momentum than its peers, DeVries said.

In 2Q14, Chimera became current with its financial statements and offered improved clarity into its holdings and ability to cover dividends going forward. Analyst Mark DeVries said that the market seemed to be expecting Annaly Capital Management, Inc. NLY to pay a huge premium to acquire Chimera, as it had done with Crexus.

“Now that NLY has gone the other way by ending its relationship with CIM, the unwarranted premium has been removed, and CIM is now more fairly valued with more positive earnings momentum than peers,” DeVries wrote.

Chimera is generating about 12.5 percent returns on core earnings, which is marginally higher than the average returns by its mortgage REIT peers of about 12 percent. Re-REMICs and loan securitizations are boosting Chimera’s ROE.

Chimera had previously announced that it was taking steps to internalize the management team and completely separate from Annaly Capital Management. There is uncertainty about the incremental cost savings from these measures, DeVries said, while adding, “We note that there will be additional costs related to the transition that could keep opex elevated this year but do not believe the dividend will come under pressure.”

The EPS estimates for FY1 and FY1 have been raised from $2.08 to $2.20 and from $2.32 to $2.29, respectively.