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On Thursday, Keefe, Bruyette & Woods analyst Jade Rahmani revised the price target for Claros Mortgage Trust Inc (NYSE: CMTG) to $2.50, down from the previous target of $4.00. Despite the adjustment, the firm maintained its Underperform rating on the company’s stock. Rahmani’s decision follows a detailed review of the company’s fourth-quarter performance and forward-looking estimates for the years 2025-2026.
Rahmani’s analysis indicated a need to reduce future earnings estimates due to several factors, including ongoing credit costs, a downsized portfolio, and decreased loan originations. The fourth quarter showed a rise in risk 4/5 loans, which now represent 46% of the unpaid principal balance (UPB), up from 38%. Additionally, non-accrual loans increased to 17.0%, a jump from 14.6%. InvestingPro analysis reveals concerning fundamentals, with negative gross profit margins and a weak overall financial health score.
Despite the stock’s seemingly attractive valuation at 0.2 times the book value, which stands at $14.12, Rahmani expressed concerns over the high level of credit uncertainty. The analyst anticipates further declines in the company’s book value, which contributed to the decision to adjust the price target.
The new price target of $2.50 reflects the anticipated decline in earnings and book value. It is based on 0.20 times the projected trough book value and a 10% earnings yield on the 2026 estimate. Rahmani highlighted that the adjusted price target also accounts for the discount warranted by credit uncertainty and the need for a liquidity cushion.
In other recent news, Claros Mortgage Trust reported a net loss of $100.7 million for the fourth quarter of 2024 and $221.3 million for the entire year. This significant loss was primarily due to an $80 million loss on real estate owned held for sale and a $30 million provision for credit losses, highlighting a decline in asset quality. Following these financial results, Moody’s downgraded Claros Mortgage Trust’s ratings to B2 from B1 and placed the ratings under review for a potential further downgrade. The downgrade reflects challenges with loan performance and limited liquidity, despite the company’s efforts to manage its financial position through asset sales and dividend suspension.
Additionally, Claros Mortgage Trust announced the suspension of its quarterly dividend, which led to a record low in its shares. The board of directors decided to halt the dividend payment for the fourth quarter to conserve capital and enhance financial flexibility. CEO Richard Mack noted that the suspension aims to provide additional flexibility for future capital allocation decisions. The board will consider reinstating the dividend based on market conditions and the company’s financial performance. These developments reflect ongoing efforts by Claros Mortgage Trust to navigate financial challenges and maintain stability.
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