Bullish indicating open at $55-$60, IPO prices at $37
On Wednesday, Keefe, Bruyette & Woods adjusted their financial outlook for Ready Capital Corp. (NYSE:RC), reducing the price target to $4.00 from the previous $6.25. Despite this change, the firm maintained its Underperform rating on the company’s stock. The revised price target follows the release of Ready Capital’s fourth-quarter results, which have prompted analysts to reassess their expectations due to several factors impacting the company’s performance.
The reduction in the price target is based on a smaller interest-earning portfolio, anticipated credit and real estate owned (REO) costs, and a decrease in new loan originations. Keefe, Bruyette & Woods foresee a challenging few quarters ahead for Ready Capital, with particular attention drawn to the significant senior note and corporate debt maturities in 2026, amounting to $760.9 million as reported in the company’s 10-K filing.
The financial services firm recently issued $220 million in secured notes with a high interest rate of 9.375%. While the company currently offers a substantial 10.1% dividend yield, analysts predict that the increased borrowing costs will further impact Ready Capital’s earnings. The company’s diverse activities, including capital-intensive commercial real estate lending, a series of mergers and acquisitions, and earnings from the sale of Small Business Administration (SBA (LON:SBA)) loans, have led to speculation about a potential split of the company to manage its various ventures more effectively. InvestingPro data reveals that analysts expect the company to return to profitability in 2025, with projected sales growth in the current year.
Despite Ready Capital’s stock trading at 0.47 times its book value, which may seem attractive to some investors, Keefe, Bruyette & Woods express caution. The firm’s cautious stance is due to concerns over credit issues, persistent uncertainties, and limited visibility into the company’s long-term earnings potential, as highlighted by the analyst in their commentary.
In other recent news, Ready Capital Corp reported a challenging fourth quarter for 2024, with a significant earnings miss. The company posted a GAAP loss of $1.90 per share and a distributable earnings loss of $0.03 per share, falling short of the expected $0.23. Revenue from core operations decreased by 12% to $91.6 million, highlighting difficulties in the commercial real estate lending market. In response to these financial challenges, Ready Capital reduced its dividend to $0.125 per share. Additionally, Citizens JMP downgraded Ready Capital’s stock rating from ’Market Outperform’ to ’Market Perform’. This downgrade followed the company’s announcement of positive VERIFY study results, which are expected to impact future regulatory discussions. Despite these setbacks, Ready Capital aims to originate $1-1.5 billion in commercial real estate loans in 2025 and anticipates a 10% stabilized core return by the end of the year. The upcoming merger with UDF IV, expected to close in March, is projected to add 17% to incremental earnings.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.