Investment illiquidity, rising interest rates, changing prepayment rates, declining real estate values, and poor credit results may negatively affect Chimera's business and results, according to the analyst note.
"Given the valuation relative to our target price and concerns core EPS and BV could be pressures if interest rates increase, we are maintaining our rating," Deutsche Bank analysts said.
With lower spread and leverage assumptions, Chimera may not be able to implement its investment strategy successfully, the firm added.
Chimera Investment, based in Jersey City, NJ, is a specialty finance company that invests in residential securities, commercial mortgage loans, real estate-related securities and various other asset classes.
Shares of Chimera Investment are declining 0.18% to $14.03 in afternoon trading Wednesday.
Separately, TheStreet Ratings team rates CHIMERA INVESTMENT CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHIMERA INVESTMENT CORP (CIM) 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 robust revenue growth, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 38.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The gross profit margin for CHIMERA INVESTMENT CORP is currently very high, coming in at 72.80%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CIM's net profit margin of 61.72% significantly outperformed against the industry.
- CHIMERA INVESTMENT CORP has improved earnings per share by 14.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, CHIMERA INVESTMENT CORP increased its bottom line by earning $2.90 versus $1.75 in the prior year. For the next year, the market is expecting a contraction of 17.2% in earnings ($2.40 versus $2.90).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Real Estate Investment Trusts (REITs) industry average, but is greater than that of the S&P 500. The net income increased by 10.9% when compared to the same quarter one year prior, going from $104.77 million to $116.19 million.
- CIM has underperformed the S&P 500 Index, declining 11.81% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: CIM Ratings Report