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What's in the Cards for New Residential's (NRZ) Q1 Earnings?

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New Residential Investment Corp.  is scheduled to report first-quarter 2022 results on May 3, before market open. The company’s first-quarter earnings are likely to have remained flat, while net interest income (NII) is anticipated to have witnessed growth from the year-ago reported figure.

The New York-based mortgage real estate investment trust (“mREIT”), primarily focused on residential real estate investments, posted core earnings of 40 cents per share in the last reported quarter, surpassing the Zacks Consensus Estimate of 38 cents.

Over the preceding four quarters, the company met the Zacks Consensus Estimate on two occasions and surpassed in the others, the average surprise being 7.7%. The graph below depicts this surprise history:

New Residential Investment Corp. Price and EPS Surprise


New Residential Investment Corp. Price and EPS Surprise

New Residential Investment Corp. price-eps-surprise | New Residential Investment Corp. Quote

Factors at Play

Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. The strength in originations in 2021, propelled by the ultra-low rates, is also making comparison difficult for the quarter. Notably, mortgage rates rose in the quarter under review.

As of the first-quarter 2022 end, the average rate on the 30-year loan rose to 4.67%, in sharp contrast to last year’s record-low mortgage rate of around 3%. This resulted in a drastic fall in mortgage origination activities, with steadily rising rates hurting refinancing.

Despite the uninspiring backdrop, NRZ is likely to have reaped benefits from its efforts to grow and scale its mortgage platform.

The increase in mortgage rates in the March-end quarter is expected to have reduced prepayment speed. Hence, premium amortization on agency mortgage-backed securities is likely to have been lower in the first quarter. This is anticipated to have alleviated pressure on NII. Overall, the Zacks Consensus Estimate for first-quarter NII of $228.6 million suggests a year-over-year jump of 69.5%.

Also, the decline in mortgage prepayments and refinancing, and an increase in mortgage rates are expected to have driven markups and valuations for mortgage service rights in the first quarter.

However, we expect spread widening to hurt the mREIT’s book value for the March-end quarter.

New Residential’s servicing portfolio is expected to have been affected in the first quarter. The company’s net servicing revenues are expected to be $484 million for the first quarter, suggesting a 5.8% decline from the prior-year quarter’s reported figure.

Refinancing volumes continued to normalize, while the pace of new originations is expected to have been hindered by an uptick in mortgage rates. We expect stiff competition to have affected gain on sale margins for New Residential relative to the first quarter. Nonetheless, the Zacks Consensus Estimate for the company’s first-quarter net gain on originated mortgage loans held for sale is pegged at $486 million, suggesting a 20.6% increase from the prior-year quarter’s reported figure.

Lastly, New Residential has been witnessing downward estimate revisions for its earnings prior to the first-quarter results, reflecting bearish analyst sentiment. Notably, the Zacks Consensus Estimate for first-quarter earnings has been revised 10.5% downward to 34 cents over the past month.

Earnings Whispers

Here is what our quantitative model predicts:

New Residential does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat this quarter.

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 New Residential is +1.47%

Zacks Rank: It currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

A few REIT stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around, are Hannon Armstrong Sustainable Infrastructure Capital (HASI - Free Report) , Public Storage (PSA - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) .

Hannon Armstrong is slated to release first-quarter 2022 earnings on May 3. HASI has an Earnings ESP of +2.40% and a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Public Storage, slated to release first-quarter earnings on May 3, has an Earnings ESP of +0.73% and a Zacks Rank of 2 at present.

Host Hotels & Resorts, scheduled to report quarterly figures on May 4, has an Earnings ESP of +4.07% and it currently sports a Zacks Rank of 1.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.