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What to Expect From Chimera (CIM) this Earnings Season?

Zacks Equity Research

Chimera Investment Corporation CIM is scheduled to report fourth-quarter 2018 results on Feb 13, before the opening bell. The company’s quarterly earnings per share (EPS) and net interest income (NII) are expected to decline year over year.

In the last reported quarter, this mortgage real estate investment trust (REIT) posted core earnings of 60 cents per share, surpassing the Zacks Consensus Estimate of 56 cents. However, NII of $315.6 million declined 6% year over year.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and missed in the other. It delivered average positive surprise of 1.4% during this period. The graph below depicts this surprise history:

Chimera Investment Corporation Price and EPS Surprise

Chimera Investment Corporation Price and EPS Surprise | Chimera Investment Corporation Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Chimera’s investment strategy is focused primarily on acquiring residential loans, non-agency residential mortgage backed securities (RMBS), agency commercial mortgage backed securities (CMBS) and agency residential mortgage backed securities (RMBS).

Its prudent capital allocation to MBS is expected to buoy the fourth-quarter results. Specifically, wider Agency MBS spreads during the Dec-end quarter likely provided the company with higher spread income and improved its portfolio liquidity.

Further, by creating a high-yielding mortgage portfolio through securitization activity, the company enjoys a competitive edge over its peers. Hence, the company’s portfolio of re-securitized subordinate bonds is expected to lend support to the Dec-end quarter results.

However, high mortgage rates and down-trending homebuilder confidence is expected to have impacted prices of Chimera’s residential mortgage credit.

Additionally, a spike in fixed-income volatility, weaker U.S. economic fundamentals, government shutdown and escalating trade tensions have elevated concerns over global economies, and might act as dampeners for the company in the to-be-reported quarter.

Moreover, the Zacks Consensus Estimate for the fourth-quarter NII of $146.8 million represents a decline of 6.9% year over year.

In addition, an increase in interest rates, volatility and wider Agency MBS spreads in the fourth quarter are anticipated to impact Chimera’s book value.

Lastly, Chimera’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the fourth-quarter EPS remained unchanged at 56 cents in a month’s time. In addition, it indicates a 9.7% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Chimerais likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Chimera’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sabra Health Care REIT, Inc. SBRA, slated to release fourth-quarter results on Feb 24, has an Earnings ESP of +5.49% and a Zacks Rank of 3.

Federal Realty Investment Trust FRT, set to report quarterly numbers on Feb 13, has an Earnings ESP of +1.53% and carries a Zacks Rank of 3.

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