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What's in Store for Ellington Residential's (EARN) Q1 Earnings?

Zacks Equity Research

Ellington Residential Mortgage REIT EARN is scheduled to report first-quarter 2019 results on May 2, after the market closes. The company’s earnings per share (EPS) are expected to remain flat year over year.

In the last reported quarter, this mortgage real estate investment trust (REIT) posted core earnings of 32 cents per share, surpassing the Zacks Consensus Estimate by a whisker.

Over the trailing four quarters, the company missed the Zacks Consensus Estimate on three occasions and beat in the other. It posted an average negative surprise of 6.45% during this period. The graph below depicts this surprise history:

Ellington Residential Mortgage REIT Price and EPS Surprise
 


Ellington Residential Mortgage REIT Price and EPS Surprise | Ellington Residential Mortgage REIT Quote

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

Factors at Play

Following a tepid fourth-quarter 2018, the agency MBS sector benefited from the Fed’s dovish stance. In fact, per data, in the first quarter, agency MBS recovered nearly half of negative excess return incurred in 2018 by posting excess return of 28 basis points (bps) compared to treasuries.

This is expected to drive Ellington Residential’sreturns infirst-quarter 2019, as the company primarily adjusts exposure to MBS in accordance with market opportunities.

Also, stable interest rates and contained agency prepayments have improved sentiments across the broader mREIT sector. This will likely improve valuation of the company’s agency RMBS investments.

However, U.S. housing activity was dismal during the March-end quarter. In fact, the first quarter is seasonally slower for housing activity, as compared with the second and third quarters that are key home-buying seasons. This is likely to impact the company’s high-yielding non-Agency RMBS portfolio.

In addition, the U.S. treasury yield curve inversion and weaker U.S. economic fundamentals might act as dampeners for the company in the to-be-reported quarter. In fact, the unfavorable spread differential between the LIBOR rates and repo funding rate will likely affect the company’s performance in the quarter under review. Specifically, higher repo rates and fall in three-month LIBOR have compressed spreads. Hence, the company will no longer enjoy the funding advantage and will witness higher cost of funds. This will subsequently impede the company’s bottom-line growth.

Lastly, Ellington Residential’sactivities during the January-March quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for first-quarter FFO remained unchanged at 34 cents in a month’s time.

Earnings Whispers

Our proven model does not conclusively show that Ellington Residential’sis 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: Ellington Residential’sEarnings ESP is -1.98%.

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

Several other players in REIT space are lined up to report their financial results. Below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lexington Realty Trust LXP, scheduled to release earnings on May 8, has an Earnings ESP of +2.44% and currently carries a Zacks Rank of 2.

Park Hotels & Resorts Inc. PK, slated to report first-quarter results on May 9, has an Earnings ESP of +0.24% and holds a Zacks Rank of 2, at present.

National Storage Affiliates Trust NSA, set to report quarterly numbers on May 2, has an Earnings ESP of +0.92% and carries a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Ellington Residential Mortgage REIT (EARN) : Free Stock Analysis Report
 
National Storage Affiliates Trust (NSA) : Free Stock Analysis Report
 
Park Hotels & Resorts Inc. (PK) : Free Stock Analysis Report
 
Lexington Realty Trust (LXP) : Free Stock Analysis Report
 
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