Rithm Capital Added to Best Ideas List

Investing.com — Wedbush analysts added Rithm Capital (RITM) to their Best Ideas List this Wednesday, highlighting the company as their top pick within the mortgage real estate investment trust (mREIT) sector.

Unique Business Model

According to Wedbush, Rithm Capital stands out for its unique business model, differentiating it from peers and justifying a higher valuation. They stated:

“We believe that RITM offers a unique business model that is unlike any of its mREIT peers, which should warrant a differing view on valuation.”

Currently, Rithm Capital trades near the higher end of its residential at-risk peers on a price-to-book (P/B) basis.

Valuation Insights

Wedbush argues that this valuation does not fully reflect the strength of Rithm’s NewRez business, which makes up about 45% of the company’s adjusted book value. Notably, NewRez ranks among the largest mortgage platforms in the U.S., making it akin to servicing-oriented mortgage companies like Mr. Cooper and PennyMac, both of which enjoy a P/B premium relative to Rithm.

Wedbush remarks:

“A more appropriate comp group for this segment of the business would be other servicing-oriented mortgage companies like Mr. Cooper (COOP, OP) and PennyMac (PFSI, OP), which both trade at relative P/B premiums.”

Long-Term Potential

Looking to the future, Wedbush analysts are optimistic about Rithm’s long-term prospects as the company aims to evolve into a large-scale alternative asset manager, potentially enhancing its current valuation. They also underscore Rithm’s attractive dividend yield of approximately 8.5%, making it appealing for investors.

With these factors in mind, Wedbush raised its price target for Rithm Capital to $14 (up from $13), indicating a 1.13x multiple on the latest quarter’s book value, stating:

“Over the longer term, the company envisions becoming a large scale alt. asset manager, which could provide even greater upside to current levels.”