Shares of Ellington Financial LLC (EFC) have been trending higher and have gained almost 23% since the beginning of the year. This mortgage investment company, which became a Zacks #1 Rank (Strong Buy) on May 12, is near its 52-week high.
On May 7, Ellington Financial reported first quarter 2012 net income of $32.1 million, compared with the last year's income of $11.1 million. Net investment income of 65 cents per share was up 3% from 63 cents recorded in the prior-year quarter. However, it missed the Zacks Consensus Estimate of 68 cents, representing a negative surprise of 4.4%.
A considerable decline in operating expenses was partially offset by a marginal drop in interest income. Overall, Ellington ended the quarter with a high level of liquidity.
Net investment income was $11.0 million, up 3.4% from the year-ago quarter on the back of a 9.1% decline in total expenses, which was attributable to the absence of incentive fees in the reported quarter. Interest income inched down 0.7% to $15.7 million as higher interest income from non-Agency MBS and commercial mortgage was more than offset by a decline in Agency MBS interest income.
Zacks Consensus Estimate Rises
Currently, the Zacks Consensus Estimate for 2012 is $4.09 per share, an expected year-over-year growth of about 55%. For 2013, the Zacks Consensus Estimate is pegged at $2.98 per share.
There is currently only one estimate for each year, but it has been revised upward in the past 30 days. As a result, the Zacks Consensus Estimates have moved higher by 46% for 2012 and 4% for 2013.
Valuation Looks Attractive
Ellington currently trades at a forward P/E of 5.19x, a 12% discount to the peer group average of 5.91x. Also, on a price-to-book basis, shares currently trade at 0.88x, a 4% discount to the peer group average of 0.92x.
Furthermore, Ellington has a trailing 12-month return on equity (:ROE) of 11.8%, which is substantially above the peer group average of 1.3%. This implies that the company reinvests its earnings more efficiently than its peer group.
Chart Shows Strength
Ellington Financial has been generating strong momentum since May 4, with the expectation of stable first-quarter earnings. Moreover, the company has continuously outperformed its 50-day and 200-day moving averages over the last three months.
Currently, Ellington is trading just 5% below its 52-week high. The year-to-date return for the stock is 23.5% compared with the S&P 500's return of 3.0%.
About the Company
Old Greenwich-based Ellington Financial LLC specializes in acquiring and managing MBS that include residential mortgage-backed securities, Alternative A-paper, mortgage-related derivatives, commercial mortgage backed securities and commercial mortgage loans. Incorporated in 2007, the company started trading on NYSE from October 2010. With a market capital of about $348.9 million, Ellington competes with Ocwen Financial Corp. (OCN) and PHH Corporation (PHH).
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