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On Wednesday, Keefe, Bruyette & Woods (KBW) adjusted their price target on shares of Apollo Commercial Real Estate Finance (NYSE:ARI), increasing it to $10.00 from the previous $8.75. The firm has decided to maintain a Market Perform rating on the stock.
The revision in the price target follows Apollo’s fourth-quarter earnings, which surpassed expectations. The firm cited several reasons for the adjustment, including increased forward earnings per share (EPS) estimates due to higher Real Estate Owned (REO) income and slightly lower Current Expected Credit Loss (CECL) reserves than previously forecasted. These factors were partially balanced by a reduction in the size of the portfolio at the end of the year. According to InvestingPro data, analysts expect the company to return to profitability this year, with seven additional real-time insights available to subscribers.
Apollo’s fourth-quarter performance was noted for its stable credit performance and the benefit of $0.07 per share from positive one-time items. These items included prepayment income and deferred fees. The company currently holds $487 million in non-accrual loans and $358 million in REO equity. KBW analysts suggest that the redeployment of these assets could further enhance earnings.
On the day of the announcement, Apollo’s stock saw a 7% increase in its share price, contributing to its impressive 9.06% return over the past week. The company’s stock is now trading close to its peers at 0.79 times book value and offers a 10.2% yield, compared to its peers, which trade between 0.75 and 0.80 times book value and have a 10.3% dividend yield. Notably, InvestingPro data shows the company has maintained dividend payments for 15 consecutive years, though its overall Financial Health Score currently indicates some challenges. Despite the positive adjustment in the price target, KBW has chosen to maintain a Market Perform rating on Apollo stock. For deeper insights into ARI’s valuation and financial health metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Apollo Commercial Real Estate Finance reported its fourth-quarter earnings, surpassing estimates from BTIG. The company reported GAAP earnings per share (EPS) of $0.27 and distributable earnings of $0.32, outperforming BTIG’s estimate by $0.07. This was mainly due to higher-than-expected realized gains on foreign currency hedges. Following the earnings report, BTIG maintained a Neutral stock rating on Apollo Commercial.
Despite facing challenges with a loan on a Massachusetts hospital portfolio, Apollo Commercial did not downgrade any loans during the quarter. The company also declared a new origination for 2025 amounting to $114 million, indicating a continuation of its proactive loan origination strategy. Over the past five quarters, Apollo Commercial has consistently originated over $500 million in new loans.
BTIG anticipates more information about Apollo Commercial’s origination pipeline for 2025 in the upcoming earnings call. Analysts are also keen for updates on condo sales at the Steinway building in New York City and the potential for freeing up capital currently tied in the company’s watchlist and REO portfolio. BTIG has indicated that their estimates for Apollo Commercial are under review following the recent developments.
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