Invesco Mortgage Capital Inc. IVR is scheduled to report fourth-quarter and 2020 results on Feb 22, after market close. The company’s quarterly earnings per share (EPS) and net interest income (NII) are expected to have declined year over year.
In the last reported quarter, this mortgage real estate investment trust (mREIT), which invests in commercial mortgage-backed securities (CMBS) and mortgage loans, posted core earnings of 6 cents, surpassing the Zacks Consensus Estimate of 4 cents. A decline in interest expenses and book value growth supported results.
Let’s see how things have shaped up prior to fourth-quarter results.
Factors at Play
Invesco Mortgage is expected to have benefitted from its prudent asset-allocation strategies in the fourth quarter. Specifically, over the past few quarters, the company has made concerted efforts to reduce its investment portfolio exposure in non-agency assets, commercial MBSs and other securities, which are currently bearing the brunt of forbearance and delinquencies due to the pandemic, and has been focusing on Agency MBSs.
Notably, in third-quarter 2020, the company purchased $5.6 billion of specified pools of Agency residential MBS (RMBS) and had $900 million of notional amount in to-be-announced securities (TBA) forward contracts. Such purchases continued in the fourth quarter as well, with Invesco Mortgage purchasing an additional $1 billion of Agency RMBS specified pool and investing $300 million of notional amount in TBAs. Moreover, in October, the company sold $112 million of credit investments.
Post such portfolio adjustments, as of Oct 31, 2020, its investment portfolio of $8.1 billion consisted of $6.5 billion of Agency RMBS specified pools, $1.2 billion of TBAs at implied costs and $351 million unencumbered credit investments.
In the fourth quarter, roll specialness continued to make Invesco Mortgage’s investments in TBAs profitable.
Moreover, the environment for Agency MBS has been favorable in the October-December period, backed by strong demand for production coupon Agency RMBS from the Federal Reserve and commercial banks. This is expected to have supported Agency MBS valuations and have aided the company’s performance in the fourth quarter.
Moreover, low level of interest rates and the flat-term structure of the repo curve are expected to have reduced Invesco Mortgage’s weighted average interest rate for outstanding repo and interest expenses.
However, the continued sale of credit assets is anticipated to have resulted in low asset balance and affect interest income for the fourth quarter.
Moreover, amid a decline in mortgage rates in the quarter under review, refinancing activities are expected to have remained elevated. This is likely to have resulted in higher prepayment activity on the company’s securities, leading to an increase in the amortization of purchase premiums, dampening asset yield spreads as well as interest income.
Amid this, the Zacks Consensus Estimate for the company’s quarterly NII is pegged at $29.9 million, suggesting a decrease of 77% on a year-over-year basis.
Lastly, prior to the fourth-quarter earnings release, there is a lack of any solid catalyst for becoming overly optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for fourth-quarter EPS has been unrevised at 7 cents over the past month. It suggests a decline of 86.5% from the year-ago reported figure.
NII for 2020 is projected to decrease 53.8% year over year to $189.5 million.
Here is what our quantitative model predicts:
Invesco Mortgage does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Invesco Mortgage is 0.00%.
Zacks Rank: Invesco Mortgage currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat their upcoming release:
American Tower Corporation AMT, set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and a Zacks Rank of 3.
National Storage Affiliates Trust NSA, slated to release quarterly earnings on Feb 22, currently has an Earnings ESP of +4.30% and a Zacks Rank of 2 (Buy).
Public Storage PSA, scheduled to announce fourth-quarter results on Feb 24, has an Earnings ESP of +0.53% and a Zacks Rank of 3 at present.
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