Key highlights of Financial Performance of 3Q'13
Below is a recent report on Armour. Looks good to me.....read please
The company reported an EPS of $0.11, below analyst expectations of $0.17, which was the result of the lower spread margins. The company's book value was $5.26, which experienced a decline of 3% from the previous quarter. The net interest rate spread was 1.32%, down by 9bps QoQ. Although the asset yield increased by 7bps, it was offset by a 22bps increase in the cost of funds.
The total investment portfolio was down by 26%, reaching $16.7 billion, due to the management's decision to sell off $6 billion of agency MBS. Also, the company has managed to lower its leverage (debt-to-equity) to 7.0x. With the rise in interest rates, the constant prepayment rate (CPR) has been down to 8.8%.
Interest rates pose a major risk, as a rapid rise in interest rates shrinks company's book value. The company has been leveraging its long term assets with a short-term repurchase agreement, so unexpected volatility in the repo market might force the company to sell its assets in order to reduce its leverage. Any further deterioration of U.S. housing prices could adversely affect mortgage companies.
I think the stock price is bottomed out and it is expected to increase, as the difference between the market value and book value narrows. I believe that the market has overreacted to the news of tapering and the cut down of $85 billion will be further delayed for a few months, as the economic data was weaker than what was expected. Furthermore, a competitive dividend yield along with significant potential for price appreciation makes ARR a compelling opportunity.
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