PennyMac Mortgage Investment Trust (PMT) PT Trimmed at Compass Point, 'Buy' Maintained

Compass Point analyst Kevin Barker reiterated a Buy rating on PennyMac Mortgage Investment Trust (NYSE: PMT) following Q1 results but trimmed his price target to $24.00 (from $25.00).

Barker comments, "Although PMT reported $0.50, we estimate the operating EPS was closer to $0.59 after we back out $12.5M related to the adjustments for capitalized interest from loan modifications and normalize the tax rate. We would not expect further adjustments to capitalized interest going forward. Absent the charge, PMT still missed our estimate of $0.72 and the consensus estimate of $0.68, primarily due to lower interest income on loans HFS and higher foreclosure expenses. We would also note PFSI (Barker - Buy, $18.50PT) did not lower fulfillment fees like they did last quarter, and it may signal that PFSI is willing to let PMT reach the 12% ROE threshold versus the 16% threshold to earn the incentive fees associated with managing the REIT. Also, PennyMac stated it is seeing changes in the distressed whole loan market and also said "in general we find the pricing for these transactions to be unattractive." Considering the gains from whole loan investments have been the main driver of balance sheet growth and earnings over the past couple of years, this could cause PMT to eventually make a shift in their investment strategy if we don't see more supply come to market. Currently, it is our expectation that we will see a pick-up in distressed whole loan supply as we move through 2014. Although the quarter was weak, PMT still screens as cheap while trading at 1.1x TBV with a 10% dividend yield. We are adjusting our operating FY14E EPS to $2.58 from $2.88 and FY15E EPS to $2.75 from $2.95, due to lower gains on distressed mortgage investments"

For an analyst ratings summary and ratings history on PennyMac Mortgage Investment Trust click here. For more ratings news on PennyMac Mortgage Investment Trust click here.

Shares of PennyMac Mortgage Investment Trust closed at $23.33 yesterday.

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