Yesterday, JP Morgan initiated coverage of SLRC with a "neutral" rating and a target of $21. This morning, John Stilmar of SunTrust came out with a "buy" rating and a target of $24. He set his 2010 estimate at $2.15 and his 2011 estimate at $2.47. He added that the valuation was too compelling to ignore. Jan
The value is incredible. Recently, STWD, ARI, PEBB all came public with nothing more than plans to invest monies generated by IPOs.
The vast majority of investible funds was derived from the IPOs themselves.
Here, the owners and founders put up their own real money and started investing during what would become the worst financial crisis period in history (IMO greater than the depression) and survived, prospered, and most importantly laid down a foundation of good portfolio company investments.
This investment is a giveaway compared to the others since the mgmt teams are having to deploy assets received from an IPO meaning that investors in the PEBB, STWD, and ARI portfolios bought nothing more than a blind pool.
Furthermore, Citi was high on STWD when it came out noting that mgmt expected to give investors an 11% yield. That has since dropped to 8% because everyone and their brother is bidding up CMO assets driving the yields down.
ARI has been a disappointment and PEBB is selling at a premium only because its CEO was the CEO of LHO and high expectations have bid the stock over NAV without much of a portfolio in place.
Those who miss getting an 11+% starting yield to cost on SLRC will kick themselves but good.
The Solar guys started investing in 2007 and if one reads the 10K would see that they've taken significant realized losses on their portfolio. They hardly started investing at the bottom -- in fact most of their investments were made in 2007 at the top of the market. That said, I think the underlying portfolio today is relatively good and that it will appreciate in value from here driven by strong technicals in the credit market. The promise of the new mortgage REITs was the prospect of owning a portfolio without bad assets underwritten at the bottom or close to the bottom of the market. Once they ramp their dividends the stocks will NOT remain dead money. That said, I agree that Solar is cheap (due to them being relatively unknown) and they should trade at the same earnings yield the better quality names trade at. Another benefit -- a largely undrawn credit facility, the cash raised from selling equity, and loan paydowns should translate into the ability to invest on the order of $300 mm in mezz debt at 13-14%ish yields.