Target Price: $7.50
Consumer Loans Drive Upside to Estimates; Dividend to Increase in 3Q
Newcastle generated $0.15 of core EPS in the quarter, higher than expected by $0.02 and $0.03 above consensus. Better than expected earnings from the consumer loan portfolio drove the beat relative to our estimate.
■ Estimates: We are raising our 2013 through 2015 core EPS estimates to $0.57 (from $0.51), $0.67 (from $0.61), and $0.65 (from $0.60) to reflect higher returns from the consumer loan portfolio.
■ Dividend: Based on our new estimates we see the dividend going to $0.16 (from $0.14 adjusted for full quarter) in the third quarter. We see further upside to the dividend should NRZ complete additional excess MSR acquisitions.
■ Active pipeline: NRZ continues to see solid investment opportunities in both the excess MSR and non-Agency investments. NRZ increased its total MRS pipeline by $100 million quarter over quarter and continues to focus on non-Agency investments.
■ Reiterate Outperform: The combination of improved performance from the consumer loan portfolio and the attractiveness of the excess MSR investments in the current rate environment should result in attractive total return for NRZ in the coming quarters.