Jefferies Comments On MFA Financial Following Earnings Release

MFA Financial's MFA 1Q11 earnings topped consensus, the company was able to grow assets more quickly than Jefferies had expected, and portfolio cash flows are becoming increasingly insulated against higher interest rates. It views MFA as one of the better plays in the mortgage REIT space as it expects the portfolio and earnings to navigate a mortgage rate environment better than many peers. MFA Financial reported GAAP EPS of $0.27 and core EPS of $0.25, which was $0.01 ahead of Jefferies estimate and $0.02 ahead of the Street. Core earnings beat our forecast on slightly higher interest income while the GAAP earnings beat was due to larger than forecast gains on the company's linked MBS transactions. The non-Agency portfolio increased by nearly $1.1B in the quarter, or 54%. Jefferies anticipates MFA was able to take advantage of mid-quarter price weakness in non-Agency MBS brought on by the disasters in Japan, although recent Maiden Lane II sales activity probably did not hurt. This asset growth was perhaps the most impressive aspect of the 1Q11 results as Jefferies had heard anecdotal evidence that finding attractively priced non-Agency RMBS was difficult for most of 1Q11. Jefferies has a $9 PT and Buy rating on MFA MFA is trading higher at $8.10