NEW YORK (TheStreet) -- Shares of ARMOUR Residential REIT are down 3.93% to $3.18 after Credit Suisse downgraded the real estate investment trust today to "underperform" from "outperform" and lowered its price target to $3.25 from $4.25. "The combination of a negative duration and relatively long dated hedges lead to book value underperformance in a flat curve environment. This combined with a below average historical risk-adjusted return profile lead us to a lower valuation," Credit Suisse said. "Our $3.25 target price represents a 10% discount to our current estimate of book value," analysts said, adding the biggest risk to the target price is interest rate risk, both on the long-and-short end of the curve. Exclusive Report: Jim Cramer's Best Stocks for 2015 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more. A flattening of the yield curve will lead to a reduction in returns available on incremental investments, analysts noted, concluding that an increase in the long-term interest rates will result in a reduction to book value. Vero Beach, FL-based ARMOUR Residential REIT invests primarily in hybrid adjustable rate, adjustable rate and fixed rate residential mortgage backed securities. Separately, TheStreet Ratings team rates ARMOUR RESIDENTIAL REIT INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: "We rate ARMOUR RESIDENTIAL REIT INC (ARR) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself." Highlights from the analysis by TheStreet Ratings Team goes as follows: Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARMOUR RESIDENTIAL REIT INC's return on equity significantly trails that of both the industry average and the S&P 500. Net operating cash flow has significantly decreased to $39.43 million or 54.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. ARR has underperformed the S&P 500 Index, declining 17.85% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. ARMOUR RESIDENTIAL REIT INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ARMOUR RESIDENTIAL REIT INC swung to a loss, reporting -$0.53 versus $0.97 in the prior year. This year, the market expects an improvement in earnings ($0.53 versus -$0.53). The gross profit margin for ARMOUR RESIDENTIAL REIT INC is currently very high, coming in at 90.86%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, ARR's net profit margin of 55.09% significantly outperformed against the industry. You can view the full analysis from the report here: ARR Ratings Report STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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