What's in the Cards for Invesco Mortgage's (IVR) Q2 Earnings?
Invesco Mortgage Capital Inc. IVR is scheduled to report second-quarter 2023 results on Aug 3, after market close. The company’s quarterly earnings are expected to have declined year over year.
In the last reported quarter, this mortgage real estate investment trust (mREIT), which invests in mortgage-backed securities (MBS) and other mortgage-related assets, posted earnings available for distribution per common share of $1.50, surpassing the Zacks Consensus Estimate of 86 cents. A decline in expenses, and higher interest income from mortgage-backed and other securities supported results.
Over the trailing four quarters, IVR surpassed the Zacks Consensus Estimate on all four occasions, the average surprise being 60.6%. The graph below depicts this surprise history:
INVESCO MORTGAGE CAPITAL INC Price and EPS Surprise
INVESCO MORTGAGE CAPITAL INC price-eps-surprise | INVESCO MORTGAGE CAPITAL INC Quote
Let’s see how things have shaped up prior to the second-quarter results.
Factors at Play
The mREIT sector was under pressure in the second quarter due to high volatility in the fixed-income markets and the widening of the spread between the 30-year Agency MBS and 10-year treasury rate. This is expected to have affected the book values of the industry players.
As of the first-quarter end, 98% of the company’s $5.4-billion portfolio was invested in Agency RMBS. Given the rise in interest rate volatility, higher-coupon Agency RMBS are likely to have underperformed, affecting book value per share for IVR in second-quarter 2023.
The Federal Reserve increased policy rates by another 25 basis points in the second quarter, with the rates reaching a 15-year high of 5-5.25%. This is likely to have increased funding costs for the company in the second quarter.
We expect the company to have witnessed faster funding cost repricing than asset yields. This is anticipated to have affected margins and increased interest expenses.
In the to-be-reported quarter, mortgage rates continued to rise, with the rate on a 30-year fixed mortgage reaching 6.71% in June, up from the 6.32% reported in the prior quarter. Thus, mortgage originations and refinancing continued to decline in the quarter.
Lower levels of refinancing are anticipated to have reduced prepayment speed and alleviated pressure from IVR’s MBS holdings. Moreover, in the first quarter, the company made efforts to invest in specified pools that offer more predictable prepayments. These are expected to have reduced net premium amortization in the second quarter, offering the scope for growth in interest income and average asset yield.
Lastly, prior to the second-quarter earnings release, there is a lack of any solid catalyst for becoming overly optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for second-quarter earnings has been unrevised at $1.07 over the past month. It suggests a decline of 23.6% from the year-ago reported figure.
Earnings Whispers
Invesco Mortgage does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Invesco Mortgage is 0.00%.
Zacks Rank: Invesco Mortgage currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
Two stocks from the broader REIT sector, which you may want to consider, as our model shows that these have the right combination of elements to report a surprise this time around, are Acadia Realty Trust AKR and Simon Property Group SPG.
Acadia Realty is slated to report its quarterly numbers on Aug 1. AKR currently has an Earnings ESP of +2.11% and a Zacks Rank of 3.
Simon Property is slated to report its quarterly numbers on Aug 2. SPG has an Earnings ESP of +1.42% and a Zacks Rank of 3 at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
Acadia Realty Trust (AKR) : Free Stock Analysis Report
INVESCO MORTGAGE CAPITAL INC (IVR) : Free Stock Analysis Report
