Ellington Financial LLC (EFC) is a specialty finance company that acquires and manages mortgage-related assets, including residential mortgage-backed securities backed by prime jumbo, Alt-A, manufactured housing and subprime residential mortgage loans, residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored enterprise. EFC had a terrible year in 2011 with the stock dropping 30%. However, 2012 is looking great as EFC is up 25% year to date with outperforming earnings and an increased dividend. EFC may have turned the corner and should be evaluated by high yield investors for portfolio inclusion.
For the first quarter of 2012, the company recognized net income of $32.1 million, or $1.90 per diluted share. This compares to net income of $1.7 million, or $0.10 per diluted share, for the quarter ended December 31, 2011. The company also measures its performance through net-asset-value-based total return. Net-asset-value-based total return measures the change in the company's book value per share, and assumes the reinvestment of dividends at book value per share. For the quarter ended March 31, 2012, net-asset-value-based total return was 8.66%.
EFC announced that its estimated book value per common share as of May 31, 2012 was $23.85, or $23.30 on a diluted basis. EFC is currently trading at $21.27 or 0.89 times book value per share. EFC has a consensus EPS estimate of $4.09 for the year ending 2012. At the current trading price, EFC has a PE ratio of 5.2 based on 2012 estimate EPS.
EFC recently increased their dividend to $0.70 per share for the first quarter of 2012. Based on current price, EFC has a dividend yield of 13.16%. Subject to the ultimate discretion of the Board of Directors, management expects to continue to recommend this amount as a quarterly dividend until conditions warrant otherwise. In addition, at the end of any year the Board of Directors will take into account the company's earnings and other factors and will consider whether to declare a special dividend.
On August 4, 2011, the company's Board of Directors approved the adoption of a $10 million share repurchase program. The program, which is open-ended in duration, allows the company to make repurchases from time to time on the open market or in negotiated transactions. To date, the company has repurchased 60,980 shares under this program at an aggregate cost of $1.1 million, or an average cost per share of $17.22.
EFC has been upgraded by several analysts in the past month:
On May 21, 2012 Thomson Reuters/Verus upgraded EFC from HOLD to BUY.
On May 17, 2012 Zacks Investment Research, Inc. upgraded EFC from HOLD to BUY.
On May 12, 2012 Columbine Capital Services, Inc. upgraded EFC from UNFAVORABLE to NEUTRAL.
EFC has an equity summary score of 7.9 out of 10 for a Bullish outlook. The First Call Consensus is a BUY rating. Zacks has an outperform rating with a price target of $23.40.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.