American Capital upgraded at JPM, book value erosion nearly finished

|By:, SA News Editor

American Capital's (AGNC +1.7%) book value has fallen about as far as it should, its net interest margin has "troughed,” and its book “remains well insulated against higher rates," J.P. Morgan analysts say in upgrading shares to Overweight and raising its price target to $22 from $20.

From peak book value of $32.49 at Q3 2012, JPM predicted a 32% decline in BV by Q4 2014; as of Q4 2013, book value had declined 26%, so the firm thinks most book value erosion is finished.

The firm raises its Q4 2014 book value estimate to $22.21 from $20.92 based on the YTD rally in MBS prices, and lifts its 2014 dividend forecast to $2.60 from $2.20, amounting to a total annualized return of ~15.3%.