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What's in the Offing for Chimera (CIM) this Earnings Season?

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Chimera Investment Corporation (CIM - Free Report) is scheduled to report first-quarter 2020 results on May 6, 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 (mREIT) posted core earnings of 64 cents per share, surpassing the Zacks Consensus Estimate of 51 cents.

Over the trailing four quarters, the company missed the Zacks Consensus Estimate in three occasions and surpassed in the other. It delivered a positive surprise of 4.09%, on average, during this period. The graph below depicts this surprise history:

Chimera Investment Corporation Price and EPS Surprise
 

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The liquidity-driven market mayhem, triggered by the ongoing coronavirus crisis, resulted in significant dislocations in the mortgage and credit markets. Specifically, as the economic impact of the pandemic became clear, cash preservations and concerns over the failure of meeting mortgage payments resulted in a risk-off approach by investors, who started indiscriminately shedding risky assets. With investors fleeing from residential and commercial debt, the mortgage market also felt the brunt of the selloff. This resulted in pricing pressures on mortgage backed securities (MBS). As prices of the securities declined, mREITs — which hold the securities — experienced a fall in book values. Impacts of these are expected to get reflected in the company’s quarterly results.

In fact, volatility and wider Agency MBS spreads in the first quarter are anticipated to impact Chimera’s book value. As of Mar 27, the company projects GAAP book value per share of $12.25-$12.75, whereas it reported $16.15 at the previous quarter end.

Additionally, with several uncertainties in the credit markets, credit-sensitive assets and non-Agency MBS (not backed by Fannie Mae and Freddie Mac) were severely impacted, driving margin calls from repo lenders. To meet the margin calls and control leverage levels, mREITs are expected to have resorted to asset sales even at unattractive valuations.

With an investment portfolio, consisting of residential mortgage loans, Agency and non-Agency residential MBS (RMBS) and Agency commercial MBS (CMBS), the company is expected to have faced distressed valuations of assets due to such unprecedented conditions.

Further, in an update on Mar 18, the company announced rolling over the financing of $7.3 billion of collateral since Mar 1.

Furthermore, high credit risk related to Chimera’s non-Agency RMBS and residential mortgage loans is expected to have affected first-quarter earnings. In fact, the company has been witnessing downward estimate revisions prior to its first-quarter earnings release. As such, the Zacks Consensus Estimate of EPS has declined 38.5% to 32 cents over the past month, reflecting analysts’ bearish sentiments. Also, it suggests a decline of 43.9% from the year-ago reported figure.

Moreover, the Zacks Consensus Estimate for the first-quarter NII of $114.7 million indicates a decline of 22.2% year over year.

Key Developments During the Quarter

On Mar 13, Chimera announced a $150-milion share buyback program. As of Mar 17, the company repurchased $22 million of its common stock.

Further, in March, it sponsored two residential mortgage loan securitizations, consisting of a $390.7-million non-rated securitization of re-performing residential mortgage loans and a $492.3-million rated securitization of re-performing residential mortgage loans.

Earnings Whispers

Here is what our quantitative model predicts:

Chimera does not have the right combination of two key ingredients — a positive Earnings ESP and 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 Chimera is 0.00%.

Zacks Rank: Chimera carries a Zacks Rank #5 (Strong Sell).

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

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI - Free Report) , scheduled to release earnings on May7, has an Earnings ESP of +5.52% and a Zacks Rank of 3 at present.

SBA Communications Corporation (SBAC - Free Report) , set to report quarterly numbers on May 5, currently has an Earnings ESP of +0.67% and a Zacks Rank of 3.

Americold Realty Trust (COLD - Free Report) , expected to release earnings results on May 7, currently has an Earnings ESP of +9.74% and a Zacks Rank #3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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