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CIM

Chimera Investment NYSE:CIM Stock Report

Last Price

US$9.45

Market Cap

US$2.2b

7D

0.7%

1Y

-36.4%

Updated

18 Aug, 2022

Data

Company Financials +
CIM fundamental analysis
Snowflake Score
Valuation2/6
Future Growth5/6
Past Performance0/6
Financial Health3/6
Dividends3/6

CIM Stock Overview

Chimera Investment Corporation operates as a real estate investment trust (REIT) in the United States.

Chimera Investment Corporation Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Chimera Investment
Historical stock prices
Current Share PriceUS$9.45
52 Week HighUS$16.85
52 Week LowUS$7.72
Beta1.1
1 Month Change2.38%
3 Month Change0.43%
1 Year Change-36.36%
3 Year Change-51.11%
5 Year Change-50.42%
Change since IPO-87.32%

Recent News & Updates

Aug 03

Chimera Investment Q2 2022 Earnings Preview

Chimera Investment (NYSE:CIM) is scheduled to announce Q2 earnings results on Thursday, August 4th, after market close. The consensus EPS Estimate is $0.35 (-35.2% Y/Y) and the consensus Revenue Estimate is $131.19M (-23.7% Y/Y). Over the last 2 years, CIM has beaten EPS estimates 88% of the time and has beaten revenue estimates 75% of the time. Over the last 3 months, EPS estimates have seen 0 upward revisions and 4 downward. Revenue estimates have seen 0 upward revisions and 4 downward.

Jul 21

Chimera, New Residential, And Yield Curve Inversion

The yield curve has inverted (again) since earlier this month. The last time we saw the inversion was in April 2022. I do not see the inversion going away anytime soon, which will keep pressuring profits from mREIT players such as Chimera Investment and New Residential Investment. We want to caution investors against their seemingly high dividend yields, which may not be enough to compensate for the risks of valuation contraction and loss of book value ahead. In the case of Chimera, it may not be able to sustain its current dividend payout given its low dividend cushion ratio of 0.57x. Thesis My last article on mREIT stocks was published about a month ago. And in that article, I specifically focused on two of the leaders in the sector: AGNC Investment (AGNC) and Annaly Capital Management (NLY). The main thesis was that the rising inflation, rate hikes, and Russia/Ukraine war will all pressure the yield spread, which will consequently pressure mREIT profits and balance sheet. Today, I want to extend that analysis to two smaller, but still sizable, mREIT players: Chimera Investment (CIM) and New Residential Investment (NRZ). This extended analysis is triggered by the following two developments since my last article: The yield curve has actually inverted since my last article. In my last article, I argued that to fight the ongoing inflation, the short-term interest rates will need to rise to somewhere between 3% and 4% and long-term rates won’t rise much above that either, resulting in an inversion. The inversion has occurred sooner than I thought as you can see from the chart below. The yield curve has inverted (again) since early-July. The last time we saw the inversion was in April. As I am typing these lines, the 10-year Treasury rate (3.01%) is below 1-year Treasury rate (3.19%), 2-year rate (3.23%), and 5-year rate (3.16%). Such inversion will have profound implications on mREIT players, especially the smaller ones such as NRZ and CIM, as we will discuss in the next section. JPMorgan Chase (JPM) recently reported its earnings. The numbers from this bellwether stock and especially its CEO Jamie Dimon’s comments really painted a dim picture for the financial sector. JPM’s earnings fell 28%, it has been building reserves for bad loans, and it decided to suspend buybacks. All of these are textbook signals for financial and credit tightening, and mREITs are the most sensitive to such tightening. Finally, you will also see the nuances of these two smaller players compared to the sector leaders. In my view, NRZ is better (in relative terms) to weather the tightening thanks to its recent Caliber acquisition. The acquisition helps to diversify its profits and dampen its sensitivity to yield spread. In contrast, CIM is in a worse position given its less diversified revenue sources and smaller scale. FRED CIM and NRZ: inverted curve signals more pain ahead The mREIT sector, together with all its leading stocks, has been under pressure since the Fed began credit tightening this year. As you can see from the following chart, the sector, represented by iShares Mortgage Real Estate Capped ETF (REM), has suffered a total loss of 15.7% YTD (i.e., dividends are accounted for). And CIM has suffered a loss of more than 34%. For the reasons just mentioned above, NRZ fared much better, only suffering a total loss of 1.5% YTD. Seeking Alpha Looking forward, I see the pressure to continue. The yield spread is the primary profit driver for mREIT stocks. The mREIT sector makes its profit primarily from the gap between long-term rates (which is what they get paid) and the short-term rates (which is what they pay to access their funds). You can clearly see such an underlying profit driver from the chart below. Shortly after the COVID breakout in early 2020, you can see from the bottom panel that the short-term treasury rate dropped almost to 0% due to the Fed’s hard landing. Hence the mREIT players enjoyed free funds. And their operating profits not only recovered but recovered big time, reaching a peak level around July 2020. Then the music stopped around July 2021. The short borrowing rates began to climb. All told, in the past one year or so, short-term borrowing rates have risen from essentially zero to the current level above 3%, by more than 300 basis points. And you can see how their operating profits stayed flat or declined. Note that the sharp rise in NRZ’s profit since July 21 was largely due to the Caliber acquisition, not organic income growth. Now the yield curve has inverted and, unfortunately, I do not see the inversion going away anytime soon. As aforementioned, to fight the ongoing inflation, my estimate is that the short-term interest rates will stay somewhere between 3% and 4%. On the other hand, I expect the long-term rates to rise no more than their current level either as argued in my earlier writings, At a very fundamental level, in the long term, treasury bond rates cannot rise above long-term inflation or GDP growth. Our government has been relying on inflation and GDP expansion to inflate away and outgrowth its debt obligations for decades in the past. And it will (it will have to) continue doing so. Seeking Alpha CIM and NRZ: not deleveraged enough Sensing the pressure ahead, both CIM and NRZ have been deleveraging recently. As you can see from the top panel of the following chart below, NRZ reduced its leverage ratio from about 8.0x in late 2021 to the current level of 6.45x. But its current leverage ratio is still above the historical average of 5.26x by a good margin (about 23% in relative terms). Taking a broader view of 10 years, its current leverage is at a relatively high level. The picture for CIM is very similar as you can see from the bottom panel. It too had started deleveraging in earnest in recent years. Its leverage has declined from a peak of ~7.4x to the lowest level of ~4x at the beginning of 2022. However, the leverage has inched up a bit since then and stands currently at a level of 4.57x. It is slightly below the historical average of 4.89x. But again, when taking a broader view of 10 years, I see its current leverage at a relatively high level. Seeking Alpha The next chart is probably more telling and concerning for CIM investors. The chart shows CIM’s dividend cushion ratio, a holistic consideration of its leverage, earnings, and dividend obligation as detailed in my earlier article here. A cushion ratio of 1.0x is considered a threshold for a safe dividend. As you can see, CIM’s cushion ratio has been in constant decline since 2016. Its cushion currently hovers around 0.57x, about 40% below the threshold. Approximately, this means CIM can only absorb financial hiccups for about half a year. If the difficulty lasts longer than that, its dividends will be in jeopardy. Author CIM and NRZ: valuation discounted, but not enough The price corrections mentioned above have compressed their valuation, especially in the case of CIM. However, my view is that the valuation discounts are not enough to compensate for the risks ahead. In terms of dividend yields, NRZ is actually yielding below its historical average level as you can see from the top panel of the chart below. NRZ’s historical yield fluctuated from as low as 4.4% to as high as 60% (which is obviously an outlier data point and should be ignored). Its long-term historical average is 11.8%. Currently, it is yielding 9.9%, almost 17% below its historical average.

Shareholder Returns

CIMUS Mortgage REITsUS Market
7D0.7%-0.4%1.4%
1Y-36.4%-16.1%-8.4%

Return vs Industry: CIM underperformed the US Mortgage REITs industry which returned -17.3% over the past year.

Return vs Market: CIM underperformed the US Market which returned -9% over the past year.

Price Volatility

Is CIM's price volatile compared to industry and market?
CIM volatility
CIM Average Weekly Movement6.2%
Mortgage REITs Industry Average Movement5.4%
Market Average Movement7.6%
10% most volatile stocks in US Market17.1%
10% least volatile stocks in US Market3.1%

Stable Share Price: CIM is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 6% a week.

Volatility Over Time: CIM's weekly volatility (6%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
200738Mohit Marriahttps://www.chimerareit.com

Chimera Investment Corporation operates as a real estate investment trust (REIT) in the United States. The company, through its subsidiaries, invests in a portfolio of mortgage assets, including residential mortgage loans, agency and non-agency residential mortgage-backed securities, agency mortgage-backed securities secured by pools of residential, commercial mortgage loans, and other real estate related securities. It has elected to be taxed as a REIT.

Chimera Investment Corporation Fundamentals Summary

How do Chimera Investment's earnings and revenue compare to its market cap?
CIM fundamental statistics
Market CapUS$2.19b
Earnings (TTM)-US$148.65m
Revenue (TTM)US$75.13m

29.2x

P/S Ratio

-14.7x

P/E Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
CIM income statement (TTM)
RevenueUS$75.13m
Cost of RevenueUS$36.80m
Gross ProfitUS$38.33m
Other ExpensesUS$186.98m
Earnings-US$148.65m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)-0.64
Gross Margin51.02%
Net Profit Margin-197.87%
Debt/Equity Ratio367.1%

How did CIM perform over the long term?

See historical performance and comparison

Dividends

14.0%

Current Dividend Yield

-210%

Payout Ratio