Analyst Eric Hagen of BTIG maintained a Buy rating on Redwood, with a price target of $8.50.
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Eric Hagen has given his Buy rating due to a combination of factors. One of the key reasons is the potential for Redwood’s stock to benefit from changes in the yield curve. Lower long-term interest rates can enhance the mark-to-market book value and support new loan originations, although they may also introduce prepayment and reinvestment risks. Conversely, a steeper yield curve could improve stock valuation by reducing financing costs.
Additionally, Redwood’s recent move to include hybrid adjustable-rate mortgages (ARMs) in its prime jumbo securitization business is seen as a strategic shift. This diversification could provide financial incentives for refinancing if interest rates are cut further by the Federal Reserve. The company’s portfolio, which includes a significant portion of prime jumbo loans, could see increased activity in the ARM market, especially if the yield curve remains steep. These factors, along with a stable market for its convertible bonds and a valuation target based on book value, underpin Hagen’s positive outlook on Redwood’s stock.
Hagen covers the Real Estate sector, focusing on stocks such as Rithm Capital, Ellington Financial, and Two Harbors. According to TipRanks, Hagen has an average return of 5.2% and a 57.79% success rate on recommended stocks.