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On Friday, B.Riley reaffirmed their Buy rating and $6.00 price target for Great Ajax Corp . (NYSE:AJX), following the company's third-quarter earnings for 2024 and subsequent model updates.
The firm anticipates that under the new management of Rithm Capital Corp. (NYSE:RITM), Great Ajax will transform into a prominent mortgage real estate investment trust (mREIT). The firm's analysts expect this transformation to gradually lead to profitability, starting in early 2025, with dividend coverage to follow.
The firm has adjusted its earnings per share (EPS) forecast for Great Ajax for fiscal year 2025, reducing it from $0.45 to $0.39. Additionally, B.Riley has introduced its EPS estimate for fiscal year 2026 at $0.62, considering it a more normalized earnings run-rate. This outlook is based on the company's strategic shift towards investing in new commercial real estate assets, which is expected to enhance earnings.
The stability of Great Ajax's book value was highlighted as a key point from the recent quarterly results. The book value experienced only a minor decrease to $5.47, and management has indicated minimal future degradation, as most of the larger legacy assets have already been sold. This stability is seen as a positive sign for the company's financial health.
B.Riley also noted that Great Ajax's stock is currently trading at a price-to-book ratio of 0.59x, which is below the peer group average of 0.75x. The firm expects Great Ajax to achieve dividend coverage by the end of the first quarter of 2025, with potential growth thereafter. These factors contribute to the firm's decision to reiterate its Buy rating and $6 price target for Great Ajax Corp.
In other recent news, Great Ajax Corp reported a GAAP net loss of $8 million and a negative earnings distribution during its Q3 2024 earnings call. The company, however, maintained a dividend yield of 7.2%.
Great Ajax, soon to be known as Rithm Property Trust, is undergoing a strategic transition towards cash-flowing commercial mortgage-backed securities (CMBS) intending to achieve breakeven earnings by Q1 2025. The transition includes selling down residential assets and reinvesting in commercial real estate debt, evidenced by a recent bid on $1 billion worth of loans.
The company also plans to fully deploy its available capital of $20 million to $25 million by the end of Q4 2024. CEO Michael Nierenberg expressed optimism for future earnings growth that would benefit equityholders.
These are recent developments in the company's strategic shift.
InvestingPro Insights
Recent InvestingPro data and tips offer additional context to B.Riley's analysis of Great Ajax Corp. (NYSE:AJX). The company's market cap stands at $145.73 million, with a price-to-book ratio of 0.59, aligning with B.Riley's observation of the stock trading below peer averages. This valuation metric suggests potential undervaluation, supporting the Buy rating.
InvestingPro Tips indicate that analysts expect sales growth and a return to profitability for AJX in the current year, which corroborates B.Riley's projection of gradual profitability beginning in early 2025. The company's significant dividend yield of 7.38% and its 10-year track record of maintaining dividend payments underscore its commitment to shareholder returns, a key consideration for REIT investors.
However, investors should note the stock's volatility and recent downward earnings revisions by analysts. These factors, along with the negative revenue growth and operating income in the last twelve months, highlight the challenges AJX faces in its transformation under new management.
For readers interested in a deeper dive, InvestingPro offers 9 additional tips for AJX, providing a more comprehensive analysis of the company's financial health and prospects.
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