Back to top

Analyst Blog

Zacks Equity Research

Western Asset Mortgage Capital: A Strong Buy

WMC LM

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Rising earnings estimates on the back of strong second quarter results – including a 43.8% earnings surprise – helped Western Asset Mortgage Capital Corporation (WMC - Snapshot Report) achieve a Zacks #1 Rank (Strong Buy) on September 15. This real estate investment trust, which mainly invests in Agency residential mortgage-backed securities (RMBS), reported robust results following its initial public offering (IPO) in May.

With a solid return of 19.1% since its debut on the exchange on May 11 and an initial dividend 38 cents per share for the 47-day period ending June 30, 2012, this stock offers an attractive investment opportunity.

The Rank Driver

Better-than-expected second quarter earnings, promising growth prospects, well balanced portfolio and leverage rate are the primary rank drivers for this stock. Moreover, the company possesses upside potential since it is externally managed and advised by Western Asset Management Company, a wholly-owned subsidiary of the reputed Legg Mason Inc. (LM - Analyst Report).

Western Asset Mortgage Capital reported solid second quarter 2012 results on August 13, 2012. The company, which just had 47 days following its IPO in the quarter ended June 30, 2012 with core earnings of $4.8 million or 47 cents per share.

Western Asset Mortgage Capital, through its successfully completed IPO and concurrent private placements, raised more than $200 million in equity. On a GAAP basis, the company reported net income of $4.3 million or 41 cents per share. As of June 30, 2012, net book value was $20.17.

Net interest income for the period was $6.1 million while its annualized net interest spread was 2.66%. Furthermore, Western Asset Mortgage Capital enjoyed 2.45% weighted average net interest spread, including IO securities and swaps.

Repurchase agreements have been entered into by Western Asset Mortgage Capital with nine counterparties, providing in excess of $1.9 billion in available financing. Leverage as of June 30, 2012 stood at 8.3x.

Earnings Estimate Revisions

The Zacks Consensus Estimate for 2012 increased 12.1% to $1.95 per share over the last 60 days. For 2013, the Zacks Consensus Estimate went north by 6.4% to $3.01 per share over the same time frame.

Valuation

Western Asset Mortgage Capital currently trades at a forward P/E of 11.3x, a 16.3% premium to the peer group average of 9.72x. Given the company's strong fundamentals, the premium valuation is justified.

About the Company

Based in Pasadena, California, Western Asset Mortgage Capital Corporation is a REIT which is involved in investing, financing, and managing agency RMBS. Moreover, it invests in commercial mortgage-backed securities. The company has a market capitalization of roughly $228.0 million.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%