Compass Point Starts PennyMac Mortgage Investment Trust (PMT) at Buy

Compass Point initiates coverage on PennyMac Mortgage Investment Trust (NYSE: PMT) with a Buy rating and $24 price target saying the stock presents an attractive risk-reward, trading at a 16% discount to our price target, while earning 13% implied dividend yield.

Analyst Kevin Barker comments, "We expect PMT to continue to grow earnings by harvesting gains from its distressed whole loan portfolio, while showing some incremental tailwinds from higher net servicing revenue. These gains will result from home price appreciation in the 5-20% range, depending on the region, compared to the current assumption of 3.6% used to value the assets. Thus, with the stock trading at 6.0x FY14E EPS, we believe it screens as cheap compared to mortgage-credit sensitive REIT peers, trading at 8.3x FY14E EPS. On a historical basis, the stock has traded to 7.0x FY1 EPS and 1.0x TBV. Assuming the dividend increases to $2.60/share we believe PMT presents an attractive risk-reward with the potential for a total return of 29%."

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 $20.66 yesterday.

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