PennyMac Mortgage Investment Trust ( PMT) is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The company operates as a REIT for tax purposes. PMT is an externally managed by PNMAC Capital Management LLC, an investment adviser.
PennyMac invests in residential mortgage-related opportunities including mortgage loans, mortgage servicing rights and mortgage-backed securities. It invests in both newly originated prime mortgage loans and distressed mortgage loans.
Disappointing Third Quarter Results
PMT reported its Q3 results on November 6, 2013. The company reported net income of $39.7 million, or $0.57 per diluted share, for the quarter, down 27% from the prior quarter. The results missed the Zacks Consensus Estimate of $0.66 per share by nine cents.
Results were affected by higher mortgage rates which resulted in a significant slowdown in refinance activity and contraction in the mortgage origination market.
ROE declined to 11% from 18% in the prior quarter but the book value increased to $21.22 from $21.06 in the prior quarter.
Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.
Zacks Consensus Estimates for the current and next fiscal year now stand at $2.91 per share and $2.82 per share, from $3.16 per share and $3.18 per share, 60 days ago. Declining estimates sent PMT to a Zacks Rank # 5 (Strong Sell) last month. PMT also has a longer-term Zacks recommendation of “Underperform”.
The Zacks Price and Consensus chart shows the decline in estimates and the corresponding drop in the share price.
The Bottom Line
While the company has a strong pipeline of distressed assets purchased at significant discounts to par, a difficult and highly competitive origination environment will continue to pose headwinds. Further, a brightening economy and rising rate environment do not bode well for the profitability of the company.
Investors looking for plays on Real Estate operations industry could consider FirstService Corporation (FSRV), which has a Zacks rank of 1 (Strong Buy) and an "Outperform" recommendation. The company is one of the largest property managers in the world with more than 2.3 billion square feet of residential and commercial properties under management.
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