Critical Analysis: Ellington Residential Mortgage REIT (EARN) and PennyMac Mortgage Investment Trust (PMT)

Ellington Residential Mortgage REIT (NYSE: EARN) and PennyMac Mortgage Investment Trust (NYSE:PMT) are both small-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their analyst recommendations, risk, valuation, dividends, profitability, earnings and institutional ownership.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Ellington Residential Mortgage REIT and PennyMac Mortgage Investment Trust, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ellington Residential Mortgage REIT 0 2 0 0 2.00
PennyMac Mortgage Investment Trust 0 4 2 0 2.33

Ellington Residential Mortgage REIT currently has a consensus target price of $14.00, indicating a potential downside of 2.91%. PennyMac Mortgage Investment Trust has a consensus target price of $17.00, indicating a potential upside of 0.24%. Given PennyMac Mortgage Investment Trust’s stronger consensus rating and higher possible upside, analysts clearly believe PennyMac Mortgage Investment Trust is more favorable than Ellington Residential Mortgage REIT.

Profitability

This table compares Ellington Residential Mortgage REIT and PennyMac Mortgage Investment Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ellington Residential Mortgage REIT 44.93% 12.25% 1.18%
PennyMac Mortgage Investment Trust 37.97% 8.67% 1.95%

Risk & Volatility

Ellington Residential Mortgage REIT has a beta of 0.64, meaning that its stock price is 36% less volatile than the S&P 500. Comparatively, PennyMac Mortgage Investment Trust has a beta of 0.49, meaning that its stock price is 51% less volatile than the S&P 500.

Valuation & Earnings

This table compares Ellington Residential Mortgage REIT and PennyMac Mortgage Investment Trust’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Ellington Residential Mortgage REIT $35.93 million 5.30 $17.43 million $1.32 10.92
PennyMac Mortgage Investment Trust $318.72 million 3.56 $114.30 million $1.71 9.92

PennyMac Mortgage Investment Trust has higher revenue and earnings than Ellington Residential Mortgage REIT. PennyMac Mortgage Investment Trust is trading at a lower price-to-earnings ratio than Ellington Residential Mortgage REIT, indicating that it is currently the more affordable of the two stocks.

Dividends

Ellington Residential Mortgage REIT pays an annual dividend of $1.60 per share and has a dividend yield of 11.1%. PennyMac Mortgage Investment Trust pays an annual dividend of $1.88 per share and has a dividend yield of 11.1%. Ellington Residential Mortgage REIT pays out 121.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. PennyMac Mortgage Investment Trust pays out 109.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider & Institutional Ownership

62.1% of Ellington Residential Mortgage REIT shares are held by institutional investors. Comparatively, 62.5% of PennyMac Mortgage Investment Trust shares are held by institutional investors. 2.7% of Ellington Residential Mortgage REIT shares are held by company insiders. Comparatively, 1.8% of PennyMac Mortgage Investment Trust shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Summary

PennyMac Mortgage Investment Trust beats Ellington Residential Mortgage REIT on 10 of the 16 factors compared between the two stocks.

Ellington Residential Mortgage REIT Company Profile

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

PennyMac Mortgage Investment Trust Company Profile

PennyMac Mortgage Investment Trust is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. The Company conducts all of its operations, and makes all of its investments, through PennyMac Operating Partnership, L.P. (its Operating Partnership) and its subsidiaries. It operates through two segments: correspondent production and investment activities. Its investment activities segment represents the Company’s investments in mortgage-related assets. The correspondent production segment represents the Company’s operations aimed at serving as an intermediary between mortgage lenders and the capital markets by purchasing, pooling and reselling newly originated prime credit quality mortgage loans either directly or in the form of MBS, using the services of PNMAC Capital Management (the Manager or PCM) and PennyMac Loan Services, LLC (PLS), both indirect subsidiaries of PennyMac Financial Services, Inc. (PFSI or PennyMac).

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