Impac Mortgage (IMPM) released their much anticipated 2009 earnings results tonight and will host a conference call Tuesday at 12pm eastern to further discuss. For those new to IMPM, they had accumulated a significant amount of debt during our recent financial crisis and have been in the process of cleaning their financials to survive. IMPM was once a stock which traded over $275 and last year was trading as low as $.16. After my initial review of the earnings release, it looks like IMPM is finally turning the corner to the surprise of many. I have been accumulating shares under $4 and now that we have more clarity with earnings, I expect the positive news plus the bullish chart indicators to elevate the PPS from here.
Per the earnings release and in summary, IMPM reported earnings of $10.8 million (excluding preferred stock dividend of $7.4 million) for the year end 2009. To show the drastic improvement from a year ago, IMPM reported a loss of 44.7 million in 2008. Stockholders’ equity for discontinued operations was a loss of $14,672 and for continued operations was positive $30,105 for a total of $15,433. IMPM also reported diluted net earnings per common share before redemption during 2009 at $0.44. This is very positive when compared to the loss of $7.34 during 2008 which is a 106% difference year over year. These numbers indicate IMPM has finally turned the corner and now we need to know whether they can gain traction from here in a poor economic environment.
IMPM has had to revamp their business structure to survive and the company no longer operates as a REIT. IMPM started an assortment of mortgage and real estate fee-based business activities in 2009 to provide future revenues. These include loss mitigation, real estate disposition, monitoring and surveillance services, real estate brokerage and lending services as well as a recent title and escrow services acquisition. The recent acquisition should assist in future growth for IMPM by helping create a one-stop shop for mortgage needs. Of important note, IMPM management stated the intent to expand service offerings to the marketplace and I will look to the conference call Tuesday morning to see if they explain that interesting tidbit of information in more detail.
In 2009 highlights, IMPM successfully implemented steps to restructure debt obligations and establish new lines of business. Through settling and exchanging several liabilities, the successful restructuring of debt obligations in 2009 has had a positive impact on liquidity. Yet, can they keep this up during these hard economic times?
Management stated the obvious economical struggles during 2009 which hopefully does not shock anyone by now. However, they also pointed out signs of modest improvement by the end of the year which I interpret as a more positive sentiment when compared to earnings released last November. Management pointed to the increase in home activity as a positive sign with new home construction picking up for the first time in years. IMPM noted home price appreciation, housing starts and home sales starting to display humble signs of recovery during the second half of the year. So how will the stock react now?
IMPM Chart (click to enlarge)
The Bollinger bands indicate a significant move should take place shortly and the MACD looks in a position to reverse pointing to the significant move being to the upside rather than downside. Having taken notice of this and believing IMPM would report improved financials, I updated my readers that I would increase my position under $4, which I feel provides a very favorable risk/reward. I am anticipating this positive news should help fuel the move north this week and IMPM will move to the mid $7 before profit taking ensues. This is based on a very simple method of charting a line from the recent highs of each bullish move over the past few months (thick blue line) and extending that line into future dates to estimate the next high. Keep in mind, chart reading is an art form and should be used as a guideline rather than a perfect science. I will watch the BB to see if the PPS increases above the top band indicating we could be overbought and a sign we could dip soon thereafter. At the same time, I will pay close attention to when the MACD looks to trend down and will take profits upon seeing one or both of those signs take place. I expect after the dust settles we will trend back to the new 50-day moving average to which I may look to start accumulating again in the future.
For all of us patient investors in IMPM, we may see our hard work pay off as soon as tomorrow and extend over the next few days if the conference call has a bullish tone. I will look to add to my position before the conference call on any weakness near $4. In case the stock does not move as expected, I will keep tight stop losses. There is always the chance that something negative is focused on during the conference call and investors sell on that news. IMPM has had a significant ride up from when I was buying around $.50 and will protect my profits if the bullish trend is not established. As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was Long IMPM but positions can change at any time.
