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Chimera (CIM) to Post Q1 Earnings: What's in the Offing?

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Chimera Investment Corporation (CIM - Free Report) is scheduled to report first-quarter 2019 results on May 1, before the opening bell. The company’s quarterly earnings per share (EPS) and net interest income (NII) are expected to decline year over year.

In the last reported quarter, this mortgage real estate investment trust (REIT) posted core earnings of 58 cents per share, surpassing the Zacks Consensus Estimate of 56 cents.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on three occasions and missed in the other. It delivered an average positive surprise of 1.88% during this period. The graph below depicts this surprise history:

Chimera Investment Corporation 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. 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.

In fact, given the favorable MBS environment, the company will likely reap benefits of higher exposure to agency MBS. In fact, the company’s investment strategy is focused primarily on acquiring residential loans, non-agency residential mortgage backed securities (RMBS), agency commercial mortgage backed securities (CMBS) and agency residential mortgage backed securities (RMBS).

Further, wider Agency MBS spreads during the March-end quarter will offer higher spread income and improved investment portfolio liquidity. Additionally, the company has a high-yielding credit portfolio and is expected to expand its agency CMBS portfolio banking on available buying opportunities.

However, U.S. housing activity was dismal in the first quarter. In fact, the first quarter is seasonally slower for housing activity, as compared with the second and third quarters that are key home buying seasons. This is expected to impact the company’s residential mortgage credit business.

Further, the U.S. treasury yield curve inversion and weaker U.S. economic fundamentals might act as dampeners for the company in the to-be-reported quarter.

Moreover, the Zacks Consensus Estimate for the first-quarter NII of $142.3 million represents a decline of 3.8% year over year.

Lastly, Chimera’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the first-quarter EPS remained unchanged at 56 cents in a month’s time. In addition, it indicates a 3.5% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Chimerais 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: Chimera’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

Several other players in REIT space are lined up to report their financial results. Below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. (ARE - Free Report) , scheduled to release earnings on Apr 29, has an Earnings ESP of +0.30% and currently carries a Zacks Rank of 2.

Park Hotels & Resorts Inc. (PK - Free Report) , slated to report first-quarter results on May 9, has an Earnings ESP of +0.24% and holds a Zacks Rank of 2, at present.

Welltower, Inc. (WELL - Free Report) , set to report quarterly numbers on Apr 30, has an Earnings ESP of +0.58% and carries a Zacks Rank of 3, currently.

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