On Friday, BofA Securities adjusted its outlook on Starwood Property Trust shares (NYSE:STWD), reducing the price target from $21.50 to $21.00 while maintaining a Neutral rating on the stock. The revision followed the company's first-quarter earnings report, which surpassed both BofA's and consensus estimates for distributable earnings per share.
Starwood Property Trust reported distributable earnings of $0.59 per share, which included $0.08 of one-time items, beating the BofA and consensus estimates of $0.46 and $0.44, respectively. Despite these solid first-quarter results, the undepreciated book value per share showed a slight quarter-over-quarter decrease of 1% to $20.69.
The firm highlighted that, although there were no significant credit issues in the recent report, the commercial real estate (CRE) sector might encounter challenges in an environment where interest rates are expected to remain elevated for an extended period. BofA Securities has expressed a cautious stance on the CRE sector due to potential broad-based headwinds.
Still, the firm regards Starwood Property Trust as one of the better-positioned CRE mortgage real estate investment trusts (mREITs) to withstand these headwinds. The company's diversified platform, which includes LNR—a countercyclical commercial mortgage-backed securities (CMBS) special servicing business—along with strong risk and asset management practices and considerable liquidity, contribute to its favorable positioning.
In summary, while BofA Securities reaffirmed its Neutral rating on Starwood Property Trust, it adjusted the stock price target slightly downwards, reflecting a cautious but stable outlook on the company within the broader context of the CRE sector's current challenges.
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