CYS Investments Inc (CYS): This Agency mREIT Could Expand its Spread

The company increased its debt levels by 0.2x during the fourth quarter. At the end of the first quarter of the current year, CYS Investments reported a leverage of 7.9x.

Undervalued

The company reported book value per share of $12.87 compared to $13.31 per share at the end of the fourth quarter of 2012. This is a sequential decrease of 3%. Since each share of CYS Investments Inc (NYSE:CYS) is currently exchanging hands aroudn $11.88, the stock is trading at an 8% discount to its book value. Therefore, the stock is undervalued and attractive compared to its book value.

Competition

CYS Investments is competing with American Capital Agency Corp. (NASDAQ:AGNC), Annaly Capital Management and ARMOUR Residential REIT, Inc. (NYSE:ARR) to purchase Agency residential mortgage backed securities. According to Yahoo Finance, American Capital Agency Corp. (NASDAQ:AGNC) and Annaly Capital Management, Inc. (NYSE:NLY) are scheduled to report their first quarter performances on April 29. Analysts expect $0.34 and $0.23 in income per share from Annaly Capital Management, Inc. (NYSE:NLY) and ARMOUR Residential REIT, Inc. (NYSE:ARR), respectively. For American Capital Agency, the estimated EPS is $4.28 per share.

Conclusion

Given the continuation of QE3, you should expect declines in the net interest rate spread of Agency mREITs. However, for CYS Investments Inc (NYSE:CYS) the situation could be favorable due to its forward MBS. Therefore, you should buy CYS Investments and benefit from the expected expansion in its spread.

The article This Agency mREIT Could Expand its Spread originally appeared on Fool.com and is written by Adnan Khan.

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