Reinvestment Pipeline And AAA Assets Will Strengthen Position

Key Takeaways

• Strong loan pipeline and substantial liquidity position Ladder Capital for potential revenue and earnings growth amid market volatility.
  
• Focus on investment-grade credit rating and conduit securitization may enhance margins and drive future earnings.
  
• Market volatility, rising interest rates, and competition pose risks to revenue, margins, and returns due to potential increases in capital costs and nonaccrual loans.

Catalysts

Operates as an internally-managed real estate investment trust in the United States.

• Ladder Capital's reinvestment momentum is building, with a strong pipeline of new loan originations expected to exceed first-quarter activity, indicating potential future revenue growth.
  
• The company is well-positioned to capitalize on market volatility with substantial liquidity and a robust balance sheet, which could lead to increased earnings from opportunistic investments.
  
• Ladder's growing securities portfolio, comprising primarily AAA-rated assets with stable yields, enhances liquidity and potential earnings stability, supporting earnings growth.
  
• A focus on potentially achieving an investment-grade credit rating could lower borrowing costs and improve net margins by making the capital structure more efficient.
  
• Increased activity in the conduit securitization market offers a high return on equity opportunity, which could significantly drive future earnings growth.

Ladder Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ladder Capital's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 39.9% today to 37.7% in 3 years time.
• Analysts expect earnings to reach $112.2 million (and earnings per share of $0.89) by about May 2028, up from $103.4 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 17.6x on those 2028 earnings, up from 13.0x today. This future PE is greater than the current PE for the US Mortgage REITs industry at 13.4x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

Ladder Capital Future Earnings Per Share Growth

Risks

• Continued market volatility and uncertainty due to geopolitical tensions and tariffs could dampen commercial real estate demand, impacting future revenues and earnings.
  
• Rising interest rates may increase the cost of capital and affect Ladder's net margins, especially if their debt costs go up faster than returns on new investments.
  
• Nonaccrual loan balances, though currently minimal, represent a default risk that could harm revenue if more loans move to nonaccrual status.
  
• Execution risks associated with deploying capital into new loans might result in suboptimal returns, impacting earnings and return on equity if those loans do not perform as expected.
  
• Competition in acquiring attractive assets could squeeze margins, while difficulties in the credit markets might limit the ability to securitize loans, impacting net profits and earnings.

Valuation

• The analysts have a consensus price target of $12.667 for Ladder Capital 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 $14.0, and the most bearish reporting a price target of just $11.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $298.0 million, earnings will come to $112.2 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $10.47, the analyst price target of $12.67 is 17.3% 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.