Back to top

Image: Bigstock

What's in the Cards for Great Ajax's (AJX) Q3 Earnings?

Read MoreHide Full Article

Great Ajax Corp. (AJX - Free Report) is scheduled to report third-quarter 2019 results on Nov 5, after the market closes. The company’s results will likely reflect year-over-year (y/y) growth in its earnings per share and revenues.

In the last reported quarter, this mortgage real estate investment trust (mREIT), which primarily focuses on residential mortgage loans and origination of non-performing loans (NPLs), posted earnings per share (excluding 25 cents from non-recurring items) of 31 cents, missing the Zacks Consensus Estimate of 40 cents. Nonetheless, total income of $20.7 million surpassed the Zacks Consensus Estimate of $14.9 million.

Over the trailing four quarters, the company missed the Zacks Consensus Estimate on all occasions. It reported an average negative surprise of 14.7% during this period. The graph below depicts this surprise history:

Great Ajax Corp. Price and EPS Surprise
 

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

While U.S. Treasury rates continued to fall across maturities in the third quarter, different parts of the yield curve inverted during this period. At the end of the quarter, the three-month rate stood at 1.88%, down from the 2.12% reported at the second-quarter end, while the 30-year rate ended at 2.12% as compared to the 2.52% recorded at the end of June.

Further, substantial decline in the 10-year yield and the Fed rate cuts have resulted in lower mortgage rates. Specifically, the 30-year mortgage rates declined from 3.75% in the week ended Jul 3, 2019 to 3.64% in the week ended Sep 26, 2019.

Supported by the above-mentioned factors, the U.S. housing market is expected to have picked up pace during the quarter. With this, mortgage REITs are anticipated to have witnessed expansion of production pipelines, driven by strong origination activities. Given the prevalent low-mortgage rates, refinancing activities shot up in the third quarter, along with rise in originations.

As for Great Ajax, elevated prepayment levels and cash flow velocity is expected to have impacted the company’s third-quarter taxable income.

Moreover, in the second quarter, the company sold $176.9 million of mortgage loans with UPB of $200.1 million. Although this is expected to result in a smaller portfolio for the future, the company is likely to have recorded gain on sale of mortgage loan in the third quarter.

Further, the company made several efforts during the quarter to expand its investment portfolio. In August, Great Ajax agreed to acquire re-performing mortgage loans (RPLs) with unpaid principal balance (UPB) of $163.5 million as well as six commercial properties for $17.9 million.

Moreover, wider spreads during the quarter are likely to have boosted asset yields amid supportive Fed policy during the quarter to be reported. This is expected to have modestly benefited the company’s net interest margins. Additionally, third-quarter 2019 revenues are pegged at $14.9 million, reflecting y/y growth of 1.2%.

However, prior to the third-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for the July-September quarter’s EPS remained unrevised at 40 cents. Nonetheless, it represents y/y improvement of 8.1%.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Great Ajax this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

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

Earning ESP: Great Ajax’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Summit Hotel Properties, Inc. (INN - Free Report) , set to release quarterly numbers on Nov 5, has an Earnings ESP of +0.54% and carries a Zacks Rank of 3, currently.

Senior Housing Properties Trust , slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Douglas Emmett, Inc. (DEI - Free Report) , scheduled to release earnings results on Nov 5, has an Earnings ESP of +4.85% and carries a Zacks Rank of 3, at present.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Douglas Emmett, Inc. (DEI) - free report >>

Summit Hotel Properties, Inc. (INN) - free report >>

Great Ajax Corp. (AJX) - free report >>

Published in