Financial Analysis: Hatteras Financial (HTS) vs. Ellington Residential Mortgage REIT (EARN)

Hatteras Financial (NYSE: HTS) and Ellington Residential Mortgage REIT (NYSE:EARN) are both small-cap financials companies, but which is the superior business? We will compare the two companies based on the strength of their institutional ownership, earnings, profitability, analyst recommendations, dividends, valuation and risk.

Profitability

This table compares Hatteras Financial and Ellington Residential Mortgage REIT’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hatteras Financial N/A -16.93% -1.89%
Ellington Residential Mortgage REIT 40.44% 12.02% 1.17%

Analyst Recommendations

This is a summary of recent ratings for Hatteras Financial and Ellington Residential Mortgage REIT, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hatteras Financial 0 0 0 0 N/A
Ellington Residential Mortgage REIT 0 2 0 0 2.00

Ellington Residential Mortgage REIT has a consensus target price of $14.00, indicating a potential upside of 32.20%. Given Ellington Residential Mortgage REIT’s higher possible upside, analysts plainly believe Ellington Residential Mortgage REIT is more favorable than Hatteras Financial.

Earnings & Valuation

This table compares Hatteras Financial and Ellington Residential Mortgage REIT’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Hatteras Financial N/A N/A N/A ($0.09) -181.00
Ellington Residential Mortgage REIT $24.22 million 5.83 $11.90 million $1.07 9.90

Ellington Residential Mortgage REIT has higher revenue and earnings than Hatteras Financial. Hatteras Financial is trading at a lower price-to-earnings ratio than Ellington Residential Mortgage REIT, indicating that it is currently the more affordable of the two stocks.

Institutional and Insider Ownership

66.3% of Ellington Residential Mortgage REIT shares are owned by institutional investors. 2.7% of Ellington Residential Mortgage REIT shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Dividends

Hatteras Financial pays an annual dividend of $1.80 per share and has a dividend yield of 11.0%. Ellington Residential Mortgage REIT pays an annual dividend of $1.48 per share and has a dividend yield of 14.0%. Hatteras Financial pays out -2,000.0% of its earnings in the form of a dividend. Ellington Residential Mortgage REIT pays out 138.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Ellington Residential Mortgage REIT beats Hatteras Financial on 10 of the 11 factors compared between the two stocks.

About Hatteras Financial

Hatteras Financial Corp. is an externally managed mortgage real estate investment trust (REIT) that invests in single-family residential mortgage real estate assets, such as mortgage-backed security (MBS), mortgage servicing right (MSR), residential mortgage loans and other financial assets. MBS are pass-through securities consisting of a pool of mortgage loans. Its primary business is owning and managing agency securities, with a primary focus on adjustable-rate mortgage securities. Its primary investment assets include Agency MBS; other agency issued securities, such as credit-risk transfer bonds; MSR; non-agency securities; residential mortgage loans, and other real estate related assets as permitted by its investment guidelines and REIT requirements. Its business operations consist of the Hatteras Financial Corp., Onslow Bay Financial LLC, First Winston Securities, Inc. and Wind River TRS LLC. It is externally managed and advised by its manager, Atlantic Capital Advisors LLC.

About Ellington Residential Mortgage REIT

Ellington Residential Mortgage REIT is a real estate investment trust. The Company conducts its business through its subsidiaries, EARN OP GP LLC and Ellington Residential Mortgage LP (the Operating Partnership). It specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. It constructs and managing a portfolio consisting of residential mortgage-backed securities (RMBS) for which the principal and interest payments are guaranteed by the United States Government agency or the United States Government-sponsored entity (Agency RMBS) and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper manufactured housing, and subprime residential mortgage loans (non-Agency RMBS). Its Agency RMBS include residential mortgage pass-through certificates, collateralized mortgage obligations (CMOs) and to-be-announced mortgage pass-through certificates (TBAs). Its non-agency RMBS include investment grade and non-investment grade classes.

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