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What's in the Cards for Ready Capital (RC) in Q4 Earnings?
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Ready Capital Corporation (RC - Free Report) is scheduled to report fourth-quarter and 2021 results on Feb 24, after the closing bell. The company is expected to have witnessed year-over-year growth in the net interest income (NII), whereas its earnings are anticipated to have declined.
In the last reported quarter, the New York-headquartered real estate investment trust (REIT), which primarily focuses on originating and servicing small-to-medium balance commercial loans, posted distributable earnings per share of 64 cents, surpassing the Zacks consensus estimate of 46 cents. Net interest income before provision for loan losses of $55 million increased significantly year over year.
Over the trailing four quarters, Ready Capital surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the average surprise being 21.9%. The graph below depicts this surprise history:
In the fourth quarter, there was an uptick in interest rate volatility due to monetary policy uncertainty, and the Fed’s decision to increase short-term rates and shift from quantitative easing to tightening. Against the backdrop, Agency securities lost ground and underperformed as spreads to benchmark rates widened and valuations slipped relative to interest rate hedges.
Mortgage originations, both purchase and refinancing, continued to normalize in the fourth quarter. The origination boom in 2020, propelled by the ultra-low rates, is also making comparison difficult for the quarter. Further, mortgage rates rose in the quarter under review. This resulted in a drastic fall in mortgage origination activities, with steadily rising rates reducing refinancing levels.
Amid this backdrop, Ready Capital’s residential mortgage banking segment is expected to have witnessed normalization in residential originations, thereby affecting revenues from the gain on sale of production.
Nonetheless, the company is expected to have reaped benefits from its inorganic growth moves that have increased scale and expanded capabilities. Also, its diversified and recurring revenues from stabilized net interest and servicing revenues from gain-on-sale operations are expected to have driven top-line growth.
The company provides life-cycle financing to small-balance commercial properties and this has likely provided it a competitive edge over peers. Strong demand in its small-balance commercial portfolios is anticipated to have driven loan growth. Also, bridge lending, industrial, and SBA loan categories are expected to have been key strengths.
In fourth-quarter 2021, Ready Capital announced the closing of more than 60 bridge loans aggregating more than $1.5 billion for its National Bridge Lending Platform. Also, RC originated more than $800 million of small balance multi-family transactions collateralized by more than 260 properties. With this, the company surpassed its previous record set in 2020. The robust production included more than $270 million of bridge-to-small balance Agency transactions.
Such a favorable origination and lending scenario is likely to have aided NII in the quarter. The Zacks Consensus Estimate for the company’s quarterly NII is pegged at $60.4 million, suggesting an improvement of 157% on a year-over-year basis.
Lastly, there has been a lack of any solid catalyst that could instill optimism prior to the fourth-quarter earnings release. The Zacks Consensus Estimate for quarterly earnings has been unchanged at 50 cents over the past month. It suggests a year-over-year decline of 2%.
Here is what our quantitative model predicts:
Ready Capital does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Ready Capital is 0.00%.
Here are three stocks from the REIT sector — Starwood Property Trust (STWD - Free Report) , Extra Space Storage (EXR - Free Report) and Xenia Hotels & Resorts, Inc. (XHR - Free Report) — which you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Starwood Property, slated to release fourth-quarter earnings on Feb 25, has an Earnings ESP of +0.95% and a Zacks Rank of 2 (Buy) at present.
Extra Space Storage, scheduled to report quarterly numbers on Feb 23, has an Earnings ESP of +0.38% and a Zacks Rank of 3.
Xenia Hotels & Resorts, slated to report quarterly numbers on Mar 1, has an Earnings ESP of +7.94% and a Zacks Rank of 3.
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What's in the Cards for Ready Capital (RC) in Q4 Earnings?
Ready Capital Corporation (RC - Free Report) is scheduled to report fourth-quarter and 2021 results on Feb 24, after the closing bell. The company is expected to have witnessed year-over-year growth in the net interest income (NII), whereas its earnings are anticipated to have declined.
In the last reported quarter, the New York-headquartered real estate investment trust (REIT), which primarily focuses on originating and servicing small-to-medium balance commercial loans, posted distributable earnings per share of 64 cents, surpassing the Zacks consensus estimate of 46 cents. Net interest income before provision for loan losses of $55 million increased significantly year over year.
Over the trailing four quarters, Ready Capital surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the average surprise being 21.9%. The graph below depicts this surprise history:
Ready Capital Corp Price and EPS Surprise
Ready Capital Corp price-eps-surprise | Ready Capital Corp Quote
Factors at Play
In the fourth quarter, there was an uptick in interest rate volatility due to monetary policy uncertainty, and the Fed’s decision to increase short-term rates and shift from quantitative easing to tightening. Against the backdrop, Agency securities lost ground and underperformed as spreads to benchmark rates widened and valuations slipped relative to interest rate hedges.
Mortgage originations, both purchase and refinancing, continued to normalize in the fourth quarter. The origination boom in 2020, propelled by the ultra-low rates, is also making comparison difficult for the quarter. Further, mortgage rates rose in the quarter under review. This resulted in a drastic fall in mortgage origination activities, with steadily rising rates reducing refinancing levels.
Amid this backdrop, Ready Capital’s residential mortgage banking segment is expected to have witnessed normalization in residential originations, thereby affecting revenues from the gain on sale of production.
Nonetheless, the company is expected to have reaped benefits from its inorganic growth moves that have increased scale and expanded capabilities. Also, its diversified and recurring revenues from stabilized net interest and servicing revenues from gain-on-sale operations are expected to have driven top-line growth.
The company provides life-cycle financing to small-balance commercial properties and this has likely provided it a competitive edge over peers. Strong demand in its small-balance commercial portfolios is anticipated to have driven loan growth. Also, bridge lending, industrial, and SBA loan categories are expected to have been key strengths.
In fourth-quarter 2021, Ready Capital announced the closing of more than 60 bridge loans aggregating more than $1.5 billion for its National Bridge Lending Platform. Also, RC originated more than $800 million of small balance multi-family transactions collateralized by more than 260 properties. With this, the company surpassed its previous record set in 2020. The robust production included more than $270 million of bridge-to-small balance Agency transactions.
Such a favorable origination and lending scenario is likely to have aided NII in the quarter. The Zacks Consensus Estimate for the company’s quarterly NII is pegged at $60.4 million, suggesting an improvement of 157% on a year-over-year basis.
Lastly, there has been a lack of any solid catalyst that could instill optimism prior to the fourth-quarter earnings release. The Zacks Consensus Estimate for quarterly earnings has been unchanged at 50 cents over the past month. It suggests a year-over-year decline of 2%.
Here is what our quantitative model predicts:
Ready Capital does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Ready Capital is 0.00%.
Zacks Rank: Ready Capital currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
Here are three stocks from the REIT sector — Starwood Property Trust (STWD - Free Report) , Extra Space Storage (EXR - Free Report) and Xenia Hotels & Resorts, Inc. (XHR - Free Report) — which you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Starwood Property, slated to release fourth-quarter earnings on Feb 25, has an Earnings ESP of +0.95% and a Zacks Rank of 2 (Buy) at present.
Extra Space Storage, scheduled to report quarterly numbers on Feb 23, has an Earnings ESP of +0.38% and a Zacks Rank of 3.
Xenia Hotels & Resorts, slated to report quarterly numbers on Mar 1, has an Earnings ESP of +7.94% and a Zacks Rank of 3.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.