Key facts
- KBW increased its 2026 and 2027 EPS guidance for Ellington Financial.
- Ellington Financial reported Q2 adjusted distributable earnings of $0.60 per share, exceeding KBW's guidance.
- KBW maintained its $15 price target and outperform rating for Ellington Financial.
- Longbridge Financial, Ellington's subsidiary, reported $30.2 million in net income for Q2.
- Longbridge originated $589.7 million in reverse mortgages in Q2, a 38% increase year-over-year.
Keefe, Bruyette & Woods (KBW) has upgraded its outlook for Ellington Financial and its subsidiary, Longbridge Financial, following a strong second-quarter earnings report. The firm moderately raised its earnings per share (EPS) guidance for Ellington, projecting $2.12 by the end of 2026 and $2.05 by the end of 2027, up from previous estimates of $1.96 and $2.00, respectively. KBW maintained its 'outperform' rating and a $15 price target for Ellington.
Ellington reported adjusted distributable earnings (ADE) of $0.60 per share for the second quarter, significantly surpassing KBW's prior guidance of $0.46 and exceeding its quarterly dividend of $0.39 per share. KBW analysts noted that their estimates point to a return on equity (ROE) of approximately 15.3% for the current year and 14.3% for the next, with Ellington's Q2 ROE finishing at 17.7%, an increase from 16.1% in the previous quarter. The current share price of approximately $13.40 trades at 0.97 times book value, offering a dividend yield of about 12%.
KBW highlighted Ellington's focus on niche credit strategies with low balance sheet leverage, a stable book value, and potential earnings upside from its mortgage banking business. The company has consistently exceeded its quarterly dividend on both GAAP and ADE bases for eight consecutive quarters. Management indicated that the $0.13 monthly dividend is appropriate, with excess earnings best used for building book value per share, though strong ADE could eventually pressure the dividend under REIT distribution requirements.
During the earnings call, Ellington's CFO, JR Herlihy, detailed Longbridge Financial's contributions, noting its ADE contribution of 23 cents and 21 cents in recent quarters. Longbridge's net income attributable to common stockholders was $30.2 million in Q2, representing more than half of Ellington's total profit of $54.4 million. Origination volumes for Longbridge's reverse mortgages grew by 38% year-over-year to $589.7 million in Q2. Proprietary loans accounted for 54% of these originations, with July 2026 marking a record month for such activity. Longbridge also achieved a new high of 29% market share in the HECM Mortgage-Backed Securities market, positioning it as the second-largest issuer.