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Redwood Trust (RWT)
NYSE:RWT

Redwood (RWT) AI Stock Analysis

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Redwood

(NYSE:RWT)

48Neutral
Redwood Trust is navigating a period of transition, balancing positive strategic growth with historical financial volatility and cash flow management issues. Although recent earnings and corporate events highlight progress, the technical outlook suggests caution, and valuation metrics offer mixed signals. Investors should weigh the high dividend yield against the risks of sustaining financial improvements.
Positive Factors
Analyst Recommendation
Analyst recommends buying due to an attractive 11% yield on an absolute basis.
Growth Potential
Strong growth in banking relationships enables Redwood to potentially purchase and securitize $1.3 trillion of jumbo loans on banks' balance sheets.
Valuation
The stock trades at almost a 30% discount to NAV, like several of the resi and commercial mortgage REITs right now.
Negative Factors
Earnings Performance
Earnings available for distribution were $0.13 versus $0.18 last quarter.
Financial Results
Redwood Trust reported a fourth-quarter GAAP net loss of $8.4 million, reflecting challenges in maintaining earnings levels.
Market Conditions
Higher rates could create some further pressure on Redwood's NAV, although a steeper yield curve may be more supportive for the mortgage capital flow.

Redwood (RWT) vs. S&P 500 (SPY)

Redwood Business Overview & Revenue Model

Company DescriptionRedwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking, and Investment Portfolio. The Residential Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Business Purpose Mortgage Banking segment operates a platform that originates and acquires business purpose loans, such as single-family rental and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential and business purpose securitization activities, and residential and small-balance multifamily bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company qualifies as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, it intends to distribute at least 90% of its taxable income as dividends to shareholders. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.
How the Company Makes MoneyRedwood Trust, Inc. generates revenue primarily through interest income from its portfolio of mortgage-backed securities and residential and multi-family loans. The company earns money by originating residential loans, which are then sold or securitized, generating origination fees. Additionally, Redwood benefits from the spread between the interest income it receives on its assets and the interest it pays on its liabilities. The company also engages in strategic partnerships within the real estate and mortgage sectors to enhance its product offerings and expand its market reach, contributing to its revenue streams.

Redwood Financial Statement Overview

Summary
Redwood's financials reflect a company undergoing significant transitions. Revenue and profitability have improved in 2024, but historical volatility and cash flow challenges present risks. The elimination of debt by 2024 marks a positive shift, yet sustainability remains uncertain.
Income Statement
45
Neutral
The company shows volatile revenue trends with a significant increase in 2024 compared to previous years. Recent gross profit margins are high, but net profit margins have been erratic, reflecting inconsistent profitability. EBIT margins improved sharply in 2024, indicating better operational efficiency, but the absence of EBITDA data limits full margin analysis.
Balance Sheet
50
Neutral
The balance sheet shows improvement in stockholders' equity compared to previous years, indicating stability. The debt-to-equity ratio has improved as total debt was eliminated by 2024, reducing financial risk. However, equity remains a small portion of total assets, suggesting potential vulnerabilities.
Cash Flow
30
Negative
The cash flow statement indicates significant fluctuations, with operating cash flow often negative, pointing to cash management issues. Free cash flow remains a concern as it has been negative in several years, although financing activities in 2024 provided substantial cash inflows.
Breakdown
Dec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income StatementTotal Revenue
945.16M158.30M-27.00M526.00M-363.00M
Gross Profit
945.16M136.56M-64.84M493.91M-380.37M
EBIT
808.77M1.06M408.00M338.00M-587.00M
EBITDA
0.0012.43M384.88M0.000.00
Net Income Common Stockholders
54.00M-6.27M-164.00M319.61M-582.00M
Balance SheetCash, Cash Equivalents and Short-Term Investments
245.16M347.74M662.00M656.79M679.46M
Total Assets
18.26B14.50B13.03B14.71B10.36B
Total Debt
16.39B12.84B11.75B13.07B9.05B
Net Debt
16.15B12.55B11.49B12.62B8.59B
Total Liabilities
17.07B13.30B11.95B13.32B9.24B
Stockholders Equity
1.19B1.20B1.08B1.39B1.11B
Cash FlowFree Cash Flow
-5.86B-2.02B-139.14M-5.69B-505.47M
Operating Cash Flow
-5.86B-2.02B-139.14M-5.69B-505.47M
Investing Cash Flow
5.72B908.72M213.89M1.40B4.07B
Financing Cash Flow
3.27B1.15B-276.87M4.28B-3.31B

Redwood Technical Analysis

Technical Analysis Sentiment
Negative
Last Price5.83
Price Trends
50DMA
5.96
Negative
100DMA
6.15
Negative
200DMA
6.53
Negative
Market Momentum
MACD
0.05
Negative
RSI
50.30
Neutral
STOCH
82.91
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For RWT, the sentiment is Negative. The current price of 5.83 is above the 20-day moving average (MA) of 5.59, below the 50-day MA of 5.96, and below the 200-day MA of 6.53, indicating a neutral trend. The MACD of 0.05 indicates Negative momentum. The RSI at 50.30 is Neutral, neither overbought nor oversold. The STOCH value of 82.91 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for RWT.

Redwood Risk Analysis

Redwood disclosed 54 risk factors in its most recent earnings report. Redwood reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Redwood Peers Comparison

Overall Rating
UnderperformOutperform
Sector (60)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
ORORC
61
Neutral
$762.71M17.765.23%20.14%61.59%
60
Neutral
$2.74B11.400.08%8531.66%5.98%-15.71%
59
Neutral
$610.11M10.236.22%12.75%-13.64%
54
Neutral
$629.11M57.452.42%10.89%-16.46%
50
Neutral
$482.27M-4.17%13.63%33.72%-15.41%
RWRWT
48
Neutral
$825.82M19.264.13%11.11%27.92%
RCRC
44
Neutral
$764.63M-19.41%20.79%-24.40%-210.65%
* Real Estate Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
RWT
Redwood
5.83
0.09
1.57%
NYMT
New York Mortgage
6.35
0.86
15.66%
RC
Ready Capital
4.48
-3.08
-40.74%
ORC
Orchid Island Capital
7.08
-0.04
-0.56%
KREF
Kkr Real Estate Finance
9.10
0.32
3.64%
TRTX
Tpg Re Finance
7.55
0.29
3.99%

Redwood Earnings Call Summary

Earnings Call Date:Apr 30, 2025
(Q1-2025)
|
% Change Since: -6.12%|
Next Earnings Date:Jul 24, 2025
Earnings Call Sentiment Neutral
The earnings call reflected a balanced sentiment with significant achievements in volume growth and stable book value, but also highlighted challenges with legacy bridge loans and market volatility.
Q1-2025 Updates
Positive Updates
Increased Lock Volume
Sequoia's first quarter lock volume increased 73% quarter-over-quarter, reaching $4 billion, the highest level since 2021, driven by strong daily flow activity and bulk purchases from strategic partners.
Book Value Stability
GAAP book value per share was estimated to be up 1% to 1.5% from the quarter end, indicating stability amidst market volatility.
Sequoia and Aspire Performance
Sequoia's net income was $25.8 million, representing a 28% ROE for the quarter. Aspire's loan production averaged 755 FICO and 68% LTV, indicating strong borrower quality.
CoreVest Growth
CoreVest funded $482 million of loans, a 48% increase year-over-year, with a focus on smaller balance loans backed by single-family homes.
Negative Updates
Legacy Bridge Loan Challenges
Delinquency rates in the legacy bridge loan book increased due to credit migration on select vintage multifamily bridge loan exposures.
Economic Environment Volatility
The market experienced extreme volatility, with macroeconomic conditions shifting materially in recent weeks, leading to a broad risk-off tone.
Company Guidance
In the Redwood Trust First Quarter 2025 Financial Results Conference Call, the company provided detailed guidance on its performance and strategic direction. Key metrics highlighted include an estimated GAAP book value per share increase of 1% to 1.5% from the previous quarter, Sequoia's $4 billion in first-quarter locks representing a 73% quarter-over-quarter growth, and net income from Sequoia at $25.8 million, translating to a 28% ROE for the quarter. The company also noted a strategic shift towards private capital in the mortgage space, targeting year-end 2025 run-rate annualized EAD returns on equity in the 9% to 12% range, up from 7% in the first quarter. Redwood is actively engaging in Washington to advocate for a level playing field between private capital and GSEs, and it is looking to expand its Aspire and CoreVest platforms, with Aspire targeting a 2% to 3% market share of an expanding addressable market. Additionally, the company discussed its preparedness for market volatility, with a focus on hedging and liquidity strategies, and mentioned the potential for share repurchases given its current discount to book value.

Redwood Corporate Events

DividendsFinancial Disclosures
Redwood Trust Reports Strong Q1 2025 Financial Results
Positive
Apr 30, 2025

On April 30, 2025, Redwood Trust, Inc. reported its financial results for the first quarter of 2025, ending March 31. The company achieved a GAAP net income of $14.4 million and declared a regular quarterly dividend of $0.18 per common share. The Sequoia Mortgage Banking segment reported a significant increase in loan activity, with $4.0 billion locked, representing a 73% increase from the previous quarter. The company’s recourse leverage ratio slightly increased to 2.5x, and it maintained a strong cash position with $260 million in unrestricted cash and cash equivalents.

Spark’s Take on RWT Stock

According to Spark, TipRanks’ AI Analyst, RWT is a Neutral.

Redwood Trust’s overall score reflects a company in transition with strengths in strategic growth initiatives and dividend yield. However, financial volatility, cash flow challenges, and mixed technical signals suggest caution. The company’s strategic focus and recent improvements are positive, but sustainability remains a key question.

To see Spark’s full report on RWT stock, click here.

Business Operations and StrategyFinancial Disclosures
Redwood Reports Q1 Growth Amid Market Challenges
Positive
Apr 22, 2025

In the first quarter of 2025, Redwood Trust reported a 1% to 1.5% increase in GAAP book value per share, despite broader market challenges. The company achieved significant growth in its jumbo lock volumes and streamlined its mortgage banking operations, positioning itself to capitalize on changes in housing finance policy. Redwood’s strategic partnerships and focus on non-Agency products are expected to drive further growth, while the company adapts to market volatility and policy shifts.

Spark’s Take on RWT Stock

According to Spark, TipRanks’ AI Analyst, RWT is a Neutral.

Redwood Trust’s overall score reflects a company in transition. Financial performance shows improvement but remains volatile, with cash flow challenges posing risks. Technical indicators signal bearish sentiment, while valuation highlights a strong dividend yield and moderate P/E ratio. The recent earnings call provides a positive outlook tempered by existing challenges.

To see Spark’s full report on RWT stock, click here.

Dividends
Redwood Declares Q1 2025 Dividends for Shareholders
Positive
Mar 13, 2025

On March 13, 2025, Redwood Trust, Inc. announced that its Board of Directors declared first quarter 2025 dividends for both common and preferred stock. The common stock dividend of $0.18 per share, consistent with the previous quarter, is payable on March 31, 2025, while the Series A preferred stock dividend of $0.625 per share is payable on April 15, 2025. This decision underscores Redwood’s commitment to providing stable returns to shareholders and highlights its ongoing role in the housing finance sector.

DividendsBusiness Operations and StrategyFinancial Disclosures
Redwood Reports Q4 2024 Loss, Increases Dividend
Neutral
Feb 13, 2025

On February 13, 2025, Redwood Trust announced its financial results for the fourth quarter of 2024, revealing a GAAP net loss of $8.4 million and a decrease in book value per share. Despite the loss, the company saw a 5.9% increase in its quarterly dividend and achieved significant operational milestones, including increased loan distribution and securitization activities through its Sequoia and CoreVest segments. The company also successfully extended its debt maturity profile and enhanced its financing capacity, indicating strategic positioning for future growth in the housing finance market.

Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.