Aging US Population And Affordable Housing Will Fuel Secular Advances

Key Takeaways

• Sustained borrower demand and operational efficiencies are driving earnings growth and boosting the resilience of Chimera’s residential mortgage investment strategy.
  
• Diversified fee income streams and prudent capital management support revenue stability, enabling Chimera to capitalize on changing market conditions and support long-term value.
  
• Elevated borrowing costs, credit risk exposure, limited growth prospects, dividend sustainability concerns, and rising competition challenge Chimera’s earnings stability and long-term value creation.

Catalysts

Operates as a real estate investment trust (REIT) in the United States.

• The persistent undersupply of affordable housing combined with an aging U.S. population is driving sustained borrower demand for residential mortgages, which supports strong collateral values and ongoing origination and refinancing activity, underpinning Chimera’s residential loan portfolio and boosting net interest income and book value over time.
  
• Chimera’s expansion of advisory and third-party asset management services, especially through the Palisades acquisition, creates new recurring fee income streams and operational scale, which are expected to meaningfully improve revenue stability and resilience in both robust and weaker origination environments.
  
• Integration of digital capabilities, fintech-driven servicing, and operational efficiencies is driving down origination and servicing costs, directly contributing to improved net interest margins and operating leverage, leading to greater potential earnings growth even in a competitive mortgage market.
  
• Strategic focus on high-yielding, non-agency RMBS and disciplined asset rotation enables Chimera to enhance net interest income and cycle capital into higher-return opportunities, increasing the ability to capitalize on spread widening, market dislocations and rising demand for private mortgage credit.
  
• Prudent balance sheet management, deleveraging during down cycles, and proactive liquidity building—including unlocking over $280 million of deployable cash for near-term reinvestment—leave the company well-positioned to capture attractive spreads and returns, supporting future dividend growth and long-term book value appreciation.

Chimera Investment Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Chimera Investment compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Chimera Investment's revenue will grow by 4.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 38.3% today to 43.8% in 3 years time.
• The bullish analysts expect earnings to reach $165.1 million (and earnings per share of $2.13) by about July 2028, up from $125.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.0x on those 2028 earnings, up from 9.1x today. This future PE is lower than the current PE for the US Mortgage REITs industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Chimera Investment Future Earnings Per Share Growth

Risks

• Persistent higher interest rates and volatility in funding markets increase Chimera’s borrowing costs, as indicated by a rise in annual run rate interest expense of approximately eleven million dollars following recent refinancings, threatening net interest margin and future earnings power if asset yields do not rise accordingly.
  
• Chimera’s portfolio remains heavily concentrated in seasoned reperforming and non-QM assets, which are higher risk and less liquid, exposing the company to potential credit losses and asset value declines, putting pressure on revenue and net income during adverse credit cycles or housing downturns.
  
• Demographic headwinds and ongoing housing affordability challenges—evidenced by flat or down home prices in key markets, ongoing 7 percent mortgage rates, and a notable decline in existing home sales and housing starts—may suppress organic growth opportunities and shrink the universe of profitable mortgage-backed assets, slowing revenue expansion over the long term.
  
• The company’s high dividend payout policy, discussed as a recurring board topic amid evident caution around dividend sustainability in the face of market volatility, reduces retained capital for reinvestment, increasing dependence on external financing and elevating dilution risk in periods of stress, which may weigh on future earnings and book value growth.
  
• Increasing competition from fintech entrants and the potential for regulatory or structural shifts in the mortgage securitization market, as alluded to in wider credit spreads and heightened market uncertainty, could erode Chimera’s fee income and compress industry margins, ultimately impacting top-line revenue and long-term earnings stability.

Valuation

• The assumed bullish price target for Chimera Investment is $16.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Chimera Investment's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $377.0 million, earnings will come to $165.1 million, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 11.6%.
• Given the current share price of $14.01, the bullish analyst price target of $16.0 is 12.4% 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.