Cherry Hill Mortgage: The Buy Case For The Common And Series A Preferred Shares

Cherry Hill Mortgage, an mREIT, reported a decrease in Q2 2025 book value per share due to derivative mark-to-market losses. Despite this, the common shares are rated a "Buy" given their trading at 4.5x consensus 2026 earnings and a 13% discount to book value, while the Series A preferred shares are also a "Buy" as their fixed dividend is projected to exceed Series B yield by 2027. Key investment risks include the company's high leverage and the potential for fewer-than-expected Fed rate cuts.

Analysis

Cherry Hill Mortgage Investment Corporation (CHMI), a mortgage REIT specializing in residential mortgage-backed securities and mortgage service rights, experienced a decline in book value per share in its Q2 2025 results due to mark-to-market losses on its derivative holdings. Despite this setback, the firm's common stock is presented as a compelling value proposition, trading at a 13% discount to its book value and at a low forward multiple of just 4.5 times its consensus 2026 earnings. A bullish case is also made for the Series A preferred shares, based on the projection that their fixed dividend yield will become more favorable than the Series B yield as early as 2027. However, the investment thesis is tempered by two significant risks: the company's high leverage, which can amplify volatility, and the macroeconomic uncertainty surrounding the pace of Federal Reserve rate cuts, as a slower easing cycle could negatively impact the mREIT's performance.

Key Decisions for Investors

• Value-oriented investors could consider the common stock (CHMI) given its significant 13% discount to book value and a low forward earnings multiple of 4.5x for 2026.
• For income-focused portfolios, the Series A preferred shares present a relative value opportunity, as their fixed dividend is projected to exceed the Series B yield by 2027.
• Investors must closely monitor the company's high leverage and the Federal Reserve's interest rate trajectory, as a slower-than-expected easing cycle represents a key risk to the investment case.
• It is critical to assess upcoming quarterly reports to determine if the derivative mark-to-market losses were an isolated event or a sign of ongoing hedging challenges.