New Residential Investment (NRZ) & Western Asset Mortgage Capital (WMC) Critical Review

Western Asset Mortgage Capital (NYSE: WMC) and New Residential Investment (NYSE:NRZ) are both financials companies, but which is the superior stock? We will contrast the two businesses based on the strength of their institutional ownership, earnings, profitability, risk, analyst recommendations, valuation and dividends.

Analyst Recommendations

This is a summary of recent ratings and price targets for Western Asset Mortgage Capital and New Residential Investment, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Western Asset Mortgage Capital 0 2 0 0 2.00
New Residential Investment 0 1 6 0 2.86

Western Asset Mortgage Capital currently has a consensus price target of $10.00, indicating a potential downside of 2.63%. New Residential Investment has a consensus price target of $18.33, indicating a potential upside of 0.24%. Given New Residential Investment’s stronger consensus rating and higher possible upside, analysts plainly believe New Residential Investment is more favorable than Western Asset Mortgage Capital.

Insider & Institutional Ownership

43.0% of Western Asset Mortgage Capital shares are owned by institutional investors. Comparatively, 48.6% of New Residential Investment shares are owned by institutional investors. 0.4% of Western Asset Mortgage Capital shares are owned by company insiders. Comparatively, 4.0% of New Residential Investment shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Risk and Volatility

Western Asset Mortgage Capital has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500. Comparatively, New Residential Investment has a beta of 1.02, suggesting that its stock price is 2% more volatile than the S&P 500.

Earnings and Valuation

This table compares Western Asset Mortgage Capital and New Residential Investment’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Western Asset Mortgage Capital $91.33 million 4.71 -$25.01 million $0.60 17.12
New Residential Investment $1.08 billion 5.22 $504.45 million $3.09 5.92

New Residential Investment has higher revenue and earnings than Western Asset Mortgage Capital. New Residential Investment is trading at a lower price-to-earnings ratio than Western Asset Mortgage Capital, indicating that it is currently the more affordable of the two stocks.

Dividends

Western Asset Mortgage Capital pays an annual dividend of $1.24 per share and has a dividend yield of 12.1%. New Residential Investment pays an annual dividend of $2.00 per share and has a dividend yield of 10.9%. Western Asset Mortgage Capital pays out 206.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Residential Investment pays out 64.7% of its earnings in the form of a dividend. New Residential Investment has raised its dividend for 3 consecutive years.

Profitability

This table compares Western Asset Mortgage Capital and New Residential Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Western Asset Mortgage Capital 18.57% 1.81% 0.23%
New Residential Investment 60.06% 19.38% 3.99%

Summary

New Residential Investment beats Western Asset Mortgage Capital on 15 of the 17 factors compared between the two stocks.

About Western Asset Mortgage Capital

Western Asset Mortgage Capital Corporation is a real estate investment trust. The Company is focused on investing in, financing and managing a diversified portfolio of real estate-related securities, whole-loans and other financial assets. The Company’s portfolio includes Agency residential mortgage-backed securities (RMBS), including Mortgage pass-through certificates, Agency derivatives, Agency Interest-Only Strips and Agency collateralized mortgage obligations (CMOs); Non-Agency RMBS, and Agency commercial mortgage-backed securities (CMBS), Non-Agency CMBS, Non United States CMBS and asset-backed securities (ABS), as well as Residential and Commercial Whole-Loans. The Company may utilize to-be-announced forward contracts (TBAs), in order to invest in Agency RMBS. The Company’s manager is Western Asset Management Company.

About New Residential Investment

New Residential Investment Corp. is a real estate investment trust (REIT). The Company focuses on investing in, and managing, investments related to residential real estate. The Company’s segments include investments in excess mortgage servicing rights (Excess MSRs); investments in mortgage servicing rights (MSRs); investments in servicer advances; investments in real estate securities; investments in residential mortgage loans; investments in consumer loans, and corporate. Its portfolio includes mortgage servicing related assets, residential mortgage backed securities (RMBS), residential mortgage loans and other investments. The Company’s servicing related assets include its investments in Excess MSRs, MSRs and servicer advances. The Company invests in agency RMBS and non-agency RMBS. The Company’s other investments consist of consumer loans.

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