Focus On Accretive Capital Deployment Will Enable Future Investment Opportunities

Key Takeaways

• Net interest margin expansion and disciplined cost management signal potential earnings growth and improved dividend coverage.
  
• Effective securitization and adaptive capital deployment boost portfolio yield, capital flexibility, and earnings accretion.
  
• Vulnerability to interest rate volatility, credit quality issues, and reliance on opportunistic capital raising may affect Angel Oak Mortgage REIT's revenue and long-term growth.

Catalysts

A real estate finance company, focuses on acquiring and investing in first lien non- qualified mortgage loans and other mortgage-related assets in the United States mortgage market.

• Continued net interest margin expansion and cash flow growth indicate improvements in dividend coverage, which may drive future earnings growth.
  
• Effective securitization strategy, with five completed securitizations exceeding their target, enhances capital flexibility, increases portfolio yield, and supports further loan portfolio growth, impacting revenue positively.
  
• Focus on accretive capital deployment through adaptive and flexible strategies aligns with market dynamics, enabling earnings accretion from new investment opportunities.
  
• Active loan purchasing and securitization activity have led to significant net interest income growth, which is expected to continue contributing to increased earnings.
  
• Decreased operating expenses and disciplined cost management demonstrate improving net margins, further benefiting earnings growth over time.

Angel Oak Mortgage REIT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Angel Oak Mortgage REIT's revenue will decrease by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 55.9% today to 65.8% in 3 years time.
• Analysts expect earnings to reach $30.2 million (and earnings per share of $1.25) by about March 2028, up from $28.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from 8.0x today. This future PE is lower than the current PE for the US Mortgage REITs industry at 12.2x.
• Analysts expect the number of shares outstanding to decline by 5.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.98%, as per the Simply Wall St company report.

Angel Oak Mortgage REIT Future Earnings Per Share Growth

Risks

• The decline in book value during Q4, driven by unrealized losses on the securitized loan portfolio, poses a risk to future revenue growth as it indicates vulnerability to interest rate and spread volatility.
  
• The company experienced a GAAP net loss of $15 million for the fourth quarter, highlighting potential challenges in maintaining consistent earnings growth in the face of fluctuating market conditions.
  
• A delinquency increase to 2.4% in their loan portfolio could signal potential credit quality issues, impacting net margins if delinquencies continue to rise unexpectedly.
  
• The cautious stance on further interest rate cuts and volatile mortgage rates may result in unpredictable revenue and earnings despite their strategic planning and focus on securitization.
  
• The reliance on opportunistic capital raising and the ability to maintain flexibility could pose risks if market conditions change, affecting long-term growth and revenue projections.

Valuation

• The analysts have a consensus price target of $12.042 for Angel Oak Mortgage REIT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.5, and the most bearish reporting a price target of just $10.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $45.9 million, earnings will come to $30.2 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 10.0%.
• Given the current share price of $9.77, the analyst price target of $12.04 is 18.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.