EFC Q3 2023 Updates By Scott Kennedy

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Article section by Scott Kennedy.

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Disclosures

Related to the stocks in this article:

CWMF is long: RITM-D, GPMT-A, DX-C, EFC-A, MFA-C, RITM-C, EFC-B, PMT-C, PMT-B, CIM-B, AGNCP, CIM-D, RITM, SLRC, MFA, GPMT, RC.

Scott Kennedy is long: RITM, RC, SLRC, GPMT, ARCC, TSLX, FSK, MFA, RITM-D, MITT-B, MITT-C, GAINL, RCB, ECCC, ECCW.

The rest of this post is from Scott Kennedy.

Summary

• This 19th earnings assessment article reviews EFC’s BV and core earnings performance during Q3 2023.

• This article also discusses how EFC’s quarterly change in BV and core earnings “matched up” to expectations. Earnings remain a key driver to stock performance.

• EFC’s BV was a modest outperformance while its core earnings was a notable underperformance.

• EFC recently received a (3%) recommendation range “downgrade”. This resulted in a risk rating downgrade from 3.5 to 4. EFC is currently deemed appropriately valued (HOLD).

• This downgrade mainly pertains to the second straight quarter of proportionately large core earnings/EAD erosion.  This quarter's decrease contradicted management's sentiment/outlook last quarter.

Introduction:

Hi subscribers. For new members, my name is Scott Kennedy and currently I fully cover 20 mortgage real estate investment trust (mREIT) and 15 business development company (“BDC”) common stocks within this Investing Group regarding research/data, subscriber questions, weekly projected book values/net asset values (BV/NAV), and common stock recommendation ranges. Colorado (“CO”) Wealth Management handles the mREIT preferred stocks and he and his team handles all other applicable REIT sectors outside the mREIT sector. CO also provides some mREIT common stock and BDC articles from time-to-time which are more of an “overview/introduction” discussion; typically based either on my or our combined research/data. This also includes some macroeconomic trends and data. My name is always attached to all Investing Group articles I personally wrote so there is no confusion for subscribers.

This REIT Forum article is part of a series of articles over a span of 6-7 weeks which will analyze my previously projected BV/NAV and core earnings (or core earnings equivalent)/net investment income (“NII”) figures and compare these metrics to each mREIT’s and BDC’s actual reported results, respectively. For readers who are familiar with my public mREIT and/or BDC articles, these types of articles are beneficial to readers who desire to pursue a more active investing strategy and/or want more “real time” thoughts/analysis.

I hope my services/contributions ultimately help enhance a subscriber’s total investment returns or minimize their total investment losses within the mREIT and BDC sectors. At the very least, I hope subscribers will gain more insight into the mREIT and BDC sectors by reading my/our exclusive REIT Forum articles.

1) EFC’s BV and Core Earnings Q3 2023 Performance (Projected Versus Actual Results):

On 11/7/2023, Ellington Financial Inc. (EFC) reported the company’s earnings results for the third quarter of 2023. Table 1 below provides EFC’s BV and earnings summary.

Table 1 – EFC Q3 2023 BV and Earnings Summary

Source: Taken Directly from the REIT Forum’s © Analytical Spreadsheets/Data

Hi subscribers. I was able to review EFC's Q3 2023 earnings results in more depth. EFC reported a BV as of 9/30/2023 of $14.33 per common share (2.5% decrease) versus my prior projection of $13.90 per common share (5.4% decrease). I consider this a modest (greater than a 2.5% but less than a 5.0%) outperformance and was within my $13.35 - $14.45 per common share range (towards the top end). Remember, even though EFC previously disclosed the company’s estimated BV as of 9/30/2023 in late October 2023, I never go back and adjust prior period BV estimates (unlike some analysts which is unfortunate). I only adjust CURRENT BV estimates (for current/future periods) to maintain my/our credibility.