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Key Factors to Impact New Residential's (NRZ) Q1 Earnings

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New Residential Investment Corp. (NRZ - Free Report) is scheduled to report first-quarter 2019 results on May 1, before market open. The company’s results will likely display year-over-year decline in its earnings per share (EPS) and net interest income (NII).

In the last reported quarter, this New York-based mortgage real estate investment trust (REIT), which primarily focuses on residential real estate investments, posted core earnings of 58 cents per share, comfortably surpassing the Zacks Consensus Estimate by 5.4%.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average positive surprise being 7.7%. The graph below depicts this surprise history:

New Residential Investment Corp. Price and EPS Surprise

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Following a turbulent fourth-quarter 2018, the agency MBS sector benefited from the Fed’s dovish stance and steepening of the U.S. treasury yield curve during first-quarter 2019. In fact, per data, in the first quarter, agency MBS recovered nearly half of negative excess return incurred in 2018 by posting an excess return of 28 basis points (bps) compared to treasuries. This is expected to drive New Residential’s quarterly performance. 

Further, the company has an impressive pool of mortgage service rights (MSRs) that account for majority of its investments. These MSRs are valuable for the company as it receives fee income as long as the mortgage stays active. As rates were steady in the quarter under review, these mortgages remained out of the refinance territory. This favorable backdrop, along with focus on MSR acquisitions, is expected to increase the value of the company’s MSR portfolio and revenues from MSR investments.

In February, New Residential raised fresh capital by issuing 40,297,096 shares of its common stock in a public offering. Gross proceeds were approximately $664.9 million. The proceeds were used for strategic investments and general corporate purposes. In fact, as a preeminent capital provider to the U.S. mortgage industry, the company is expected to have benefited from its access to sound financial resources in the March-end quarter.

Nonetheless, the Zacks Consensus Estimate for first-quarter NII of $190.8 million reflects a year-over-year decline of 26.4%.

Additionally, there is lack of any solid catalyst prior to the first-quarter earnings release. As such, the Zacks Consensus Estimate of EPS for the to-be-reported quarter remained unchanged at 55 cents, over the past month. The figure also reflects a year-over-year decline of 5.2%. 

Earnings Whispers

Our proven model does not conclusively show that New Residential is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: New Residential’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. (ARE - Free Report) , scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mack-Cali Realty Corporation (CLI - Free Report) , slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and holds a Zacks Rank of 3.

Welltower, Inc. (WELL - Free Report) , scheduled to release earnings on Apr 30, has an Earnings ESP of +0.09% and carries a Zacks Rank of 3.

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