Compass Point Downgrades American Capital Mortgage (MTGE) to Neutral

Compass Point downgraded American Capital Mortgage (NASDAQ: MTGE) from Buy to Neutral with a price target of $20.00, citing limited near-term EPS upside.

Analyst Jason Stewart commented, "Core earnings per share (EPS) beat our expectations, but the longer term outlook for growth in taxable income was muted in the current rate environment. Many of the initiatives that provide a catalyst to drive shares to a premium to book value per share (BVPS) will take longer to materialize given current market volatility. We believe margin pressure and a lower contribution of dollar roll income pose a risk to core earnings power and increase the potential for a dividend cut in 2015. That said, MTGE shares are trading at approximately 85% of 4Q14 BVPS as diversification efforts have proved less than fruitful thus far."

Stewart added, "Further investments in credit risk transfer securities and MSRs should ultimately lead to a premium valuation versus securities-only peers, but the period to bring these initiatives to scale has lengthened from our initial expectation. As a result, we believe the shares will trade at a discount to peers until greater diversification provides a catalyst to revalue shares higher. Our $20 price target represents 92% of 4Q14 BVPS and a pro-forma dividend yield of 12%."

The firm cut FY 2015 EPS from $2.60 to $2.48 and 2016 EPS is $2.39.

For an analyst ratings summary and ratings history on American Capital Mortgage click here. For more ratings news on American Capital Mortgage click here.

Shares of American Capital Mortgage closed at $18.47 yesterday.

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