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Chimera Investment Corporation Message Board

  • bluedreamdreamer bluedreamdreamer Oct 5, 2012 7:53 AM Flag

    Bull case for CIM

    I note that both CIM stock price and div rate are about 2/3 from a couple years ago, so price has followed yield . However, other high yield mREIT's like agnc have appreciated even as distributions have fallen, riding up the "dividend bubble" inflation driven by yield-hungry income investors frustrated by lousy bond yields. CIM still stands to benefit from the "dividend bubble" one their financials are reported and found to be OK.

    not sure about CIM prepayment rate, though....anyone?

    and with hybrid reit IVR getting an upgrade by MS on Oct 4 (they are bullish on nonagency stuff, which CIM has, and more bearish on agency stuff- hence their NLY downgrade- see excerpt below) and CIM's cheap P/B =0.84 (which should be verified once financials are released, if CIM is to be believed) there is 20% upside (if B stays constant but P/B inflates to 1) or more (if B inflates, as MS expects for IVR- see excerpt below), even with the current yield way lower than 2010

    IMO

    excerpt from MS analyst notes

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    • from MS on IVR, currently yielding 12.7% (vs. CIM 13.2%, AGNC 14.2%, 11.8%, ANH 9.4%)

      "We prefer hybrids to agency mREITs at this point in the cycle on 1) higher yields as non-agency prepayments are likely to increase (non-agency MBS is carried at a discount), and 2) future portfolio growth in higher yield assets as non-agency originations begin to increase from today’s very low levels. We believe prime jumbo will be the first area in the non-agency space to benefit from slightly increased credit availability, and therefore we upgrade IVR to OW.

      We are increasing our price targets a median of 15% for the hybrid mREITs on 1) an estimated 10.2% median increase to book value in 3Q on higher non-agency pricing (AAA ABX up 15% q/q) and 2) a multiple re-rating. The hybrid mREITs are trading in-line with the agency mREITs (median P/B of 1.03x vs. 1.01x for the agency mREITs) despite our expectations for higher earnings and dividend growth (+15% y/y dividend growth in ‘13 vs. -4% for the agencies).

      Following QE3 and extended low rate guidance from the Fed, we expect earnings and dividends will remain under pressure for agency mREITs on lower asset yields. We forecast a median dividend cut of 4% in 2013 and believe stock appreciation in the agency space will be driven by book value growth (estimate a median of 4.6% for 3Q), but P/B multiples will remain range-bound. We downgrade NLY to UW and AGNC to EW"

      if CIM lowers its distribution like ANH just did, bull case fgoes to pieces IMO

 
CIM
16.33+0.06(+0.37%)Jul 22 4:00 PMEDT