Redwood Trust (NYSE:RWT) versus MFA Financial (MFA) Financial Analysis

Redwood Trust (NYSE: RWT) and MFA Financial (NYSE:MFA) are both financials companies, but which is the better business? We will compare the two companies based on the strength of their valuation, earnings, dividends, analyst recommendations, risk, profitability and institutional ownership.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Redwood Trust and MFA Financial, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Redwood Trust 0 0 2 0 3.00
MFA Financial 0 4 1 0 2.20

Redwood Trust presently has a consensus price target of $17.00, suggesting a potential upside of 12.73%. MFA Financial has a consensus price target of $8.75, suggesting a potential upside of 12.47%. Given Redwood Trust’s stronger consensus rating and higher possible upside, analysts plainly believe Redwood Trust is more favorable than MFA Financial.

Institutional and Insider Ownership

85.4% of Redwood Trust shares are owned by institutional investors. Comparatively, 80.6% of MFA Financial shares are owned by institutional investors. 2.3% of Redwood Trust shares are owned by insiders. Comparatively, 0.9% of MFA Financial shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Volatility and Risk

Redwood Trust has a beta of 0.91, meaning that its share price is 9% less volatile than the S&P 500. Comparatively, MFA Financial has a beta of 0.66, meaning that its share price is 34% less volatile than the S&P 500.

Earnings & Valuation

This table compares Redwood Trust and MFA Financial’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Redwood Trust $246.00 million 4.73 $131.25 million $1.38 10.93
MFA Financial $566.49 million 5.45 $312.66 million $0.73 10.66

MFA Financial has higher revenue and earnings than Redwood Trust. MFA Financial is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Redwood Trust and MFA Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Redwood Trust 41.62% 9.87% 2.06%
MFA Financial 47.53% 7.33% 2.26%

Dividends

Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 7.4%. MFA Financial pays an annual dividend of $0.80 per share and has a dividend yield of 10.3%. Redwood Trust pays out 81.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. MFA Financial pays out 109.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Redwood Trust beats MFA Financial on 10 of the 16 factors compared between the two stocks.

Redwood Trust Company Profile

Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.

MFA Financial Company Profile

MFA Financial, Inc. is engaged in the real estate finance business. The Company’s subsidiaries invest in residential mortgage assets, including Non-Agency mortgage-backed securities (MBS), Agency MBS, residential whole loans and credit risk transfer (CRT) securities. The Company’s Non-Agency MBS portfolio primarily consists of Legacy Non-Agency MBS and 3 Year Step-up securities. In addition to Non-Agency MBS investments, the Company invests in re-performing and non-performing residential whole loans through its interests in certain consolidated trusts. The mortgages collateralizing its Agency MBS portfolio are predominantly Hybrids, 15-year fixed-rate mortgages and adjustable-rate mortgages (ARMs).

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