Jones Trading Upgrades ARMOUR Residential REIT to Buy, Sees Value Gap Versus Peers
In a move highlighting value opportunities in the mortgage REIT sector, Jones Trading upgraded ARMOUR Residential REIT, Inc. (NYSE:ARR) from Hold to Buy on January 16, setting a price target of $20.50. The firm argues that the stock is trading at a discount relative to its agency peers, driven by an anticipated rise in book value.
Jones Trading forecasts ARMOUR's book value will climb to $19.50 per share by mid-January, up from $17.49 at the end of September. This places the stock at roughly 0.97 times projected book value—near the lower end of its peer group—suggesting room for appreciation if market sentiment aligns with fundamentals.
The upgrade follows Compass Point's initiation of coverage with a Buy rating in mid-December. That analysis pointed to wider mortgage spreads as a tailwind for book value expansion, with expectations that spreads will narrow as fixed-income volatility eases and the yield curve steepens.
ARMOUR Residential REIT, founded in 2008 and based in Maryland, primarily invests in residential mortgage-backed securities issued or guaranteed by U.S. government-sponsored entities such as Fannie Mae and Freddie Mac. Its performance is closely tied to interest rate trends and housing finance conditions.
Market Context & Analyst Outlook
The upgrade comes amid a shifting landscape for mortgage REITs, which have faced pressure from interest rate uncertainty. Jones Trading's call reflects a view that ARMOUR's current pricing does not fully reflect its improving book value trajectory, especially when compared to similar agency-focused REITs. Wider mortgage spreads—the difference between mortgage yields and Treasury rates—have supported earnings potential, though analysts watch for compression as the Federal Reserve's policy path becomes clearer.
Voices from the Street
Michael Torres, portfolio manager at Horizon Advisors: "ARMOUR's valuation looks compelling if book value stabilizes near these levels. The agency mREIT space offers selective value, and ARR appears to be on the right side of that trade."
Sarah Chen, fixed-income strategist at Cedar Creek Capital: "I'm cautious. Mortgage spreads could tighten faster than expected, and book value forecasts often prove optimistic. This upgrade feels like catching a falling knife."
David Reeves, independent retail investor: "Finally, someone's calling out the discount! ARR has been overlooked for months while peers traded higher. This is a clear buy signal."
Lisa Hammond, editor at The Yield Report: "Jones Trading is late to the party. Compass Point flagged this weeks ago. The real question is whether retail investors should chase mREITs now, with rate cuts still uncertain."
Disclosure: This analysis is based on public data and analyst reports. It is not investment advice. Originally sourced from Insider Monkey.