Compass Point Believes Apollo Residential Mortgage Is Still Too Cheap

In a report published Thursday, Compass Point analyst Jason Stewart reiterated a Buy rating and $20.00 price target on Apollo Residential Mortgage (NYSE: AMTG).

In the report, Compass Point noted, “We reiterate our Buy rating and $20 price target on AMTG shares following 2Q14 earnings. The company reported operating EPS of $0.52, which was in line with our core EPS estimate and consensus expectations. A highlight of the quarter was the 4.6% QoQ increase in book value per share (BVPS). While further portfolio diversification into additional credit related assets has occurred at a slower pace than expected, the company continues to evaluate alternative non-Agency investments. Incremental capital allocated to non-Agency MBS and loans can be a material differentiating factor for AMTG.

"Over time, the incremental allocation to non-Agency MBS and other credit related investments should result in a premium valuation. At 83% of current BVPS, investors have the potential for both current income and capital appreciation as shares migrate to a valuation more reflective of a diversified mortgage REIT. Our $20 price target represents a modest premium to 2Q14 BVPS and a dividend yield of 8%. If achieved, our price target represents a total return opportunity of 33%.”

Apollo Residential Mortgage closed on Wednesday at $16.35.