• B of A Securities analyst Derek Hewett downgraded Angel Oak Mortgage Inc (NYSE: AOMR) from Buy to Underperform and lowered the price target from $15.5 to $6.5.

• Given its vertically integrated platform, he found AOMR ideal for the secular growth opportunity in the non-qualified mortgage (Non-QM) market.

• AOMR also faced significant near-term headwinds, given elevated volatility across the fixed-income and securitization markets.

• Specifically, wider credit spreads drove book value per share (BVPS) lower since AOMR’s assets were at fair value.

• Additionally, illiquidity and dislocation in the securitization market have limited access to permanent non-course financing, which unlocked liquidity that could be recycled into new purchases.

• While AOMR shares have meaningful underperformed peers and the dividend was reset lower in Q4, earnings visibility is low, and he believes risk remains skewed to the downside.

• We think AOMR should trade at a discount to credit-sensitive peers.

• AOMR’s economic return has significantly underperformed credit-sensitive peers and should continue to lag peers in the near term.

• Price Action: AOMR shares traded lower by 6.69% at $6.21 on the last check Monday.

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