Rithm Capital's Updated Sector Comparative Analysis - Part 1 (Includes Recommendation For 17 Peers As Of 6/6/2025)

Core Insights - The article focuses on analyzing Rithm Capital Corp.'s (RITM) recent performance and comparing it with 17 mortgage real estate investment trust (mREIT) peers, highlighting key metrics such as investment composition, leverage, hedging coverage ratio, and economic returns [1][2][3]. Investment Composition and Performance - As of March 31, 2025, RITM's investment portfolio consisted of 21% fixed-rate agency mortgage-backed securities (MBS), 0% variable-rate agency MBS, and 36% allocated to mortgage servicing rights (MSR) investments, with 43% in non-agency MBS and non-MBS holdings [17][18]. - RITM's book value (BV) per share decreased from $12.56 at the end of Q4 2024 to $12.39 at the end of Q1 2025, resulting in a quarterly BV decrease of 1.35% [20][21]. - Despite the minor BV decrease, RITM has managed to grow its BV over the past three years, outperforming most mREIT peers in terms of economic return [21][48]. Leverage and Hedging Coverage - RITM's on-balance sheet leverage ratio was 2.6x, with an at-risk (total) leverage ratio of 1.1x as of March 31, 2025, indicating a slight decrease in on-balance sheet leverage and a slight increase in at-risk leverage compared to the previous quarter [19][49]. - The hedging coverage ratio for RITM was geared towards lower mortgage interest rates, which helped mitigate BV volatility during periods of declining rates [50]. Economic Returns and Valuation - RITM's trailing 24-month economic return was 23.31%, significantly outperforming the average returns of its mREIT peers, which ranged from 2.43% to 20.02% across various classifications [48]. - As of June 6, 2025, RITM's stock price was trading at a 9.64% discount to the estimated current BV of $12.55 per share, suggesting that RITM is slightly undervalued compared to its peers [45][46]. Diversification and Investment Strategy - RITM's investment strategy includes a diverse array of financial investments, which provides natural hedges against market fluctuations, particularly in rising interest rate environments [25][26]. - The company has recently expanded its asset management services and diversified its investment portfolio through acquisitions, including Sculptor Capital Management [27][31].