Why Arlington Asset Investment (AI) Is Slipping Today

NEW YORK (TheStreet) -- Arlington Asset Investment (AI) is slipping over Tuesday's session after pricing its previously announced public offering.

By midday, shares had tumbled 4.5% to $27.10.

Trading volume of 2.4 million was more than 17 times its three-month daily average.

The mortgage-related investment firm said it had commenced an underwritten registered public offering of 2.75 million shares of its Class A common stock at a price of $27.40 a share.

Underwriters will also have a 30-day option to purchase up to an additional 412,500 shares.

The Virginia-based business currently has 16.6 million shares outstanding.

Arlington Asset said in a statement it expects to use net proceeds to acquire target assets, "including residential mortgage-backed securities (MBS) issued by U.S. government agencies or guaranteed as to principal and interest by U.S. government agencies or U.S. government-sponsored entities and MBS issued by private organizations."

Barclays (BCS), Credit Suisse (CS) and RBC Capital Markets will serve as joint bookrunning managers for the offering.

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TheStreet Ratings team rates ARLINGTON ASSET INVESTMENT as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARLINGTON ASSET INVESTMENT (AI) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 166.10% to $19.82 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 123.99%.
  • The gross profit margin for ARLINGTON ASSET INVESTMENT is rather high; currently it is at 54.48%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, AI's net profit margin of 374.22% significantly outperformed against the industry.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 77.2% when compared to the same quarter one year ago, falling from $175.80 million to $40.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Capital Markets industry and the overall market, ARLINGTON ASSET INVESTMENT's return on equity is below that of both the industry average and the S&P 500.

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