LOS ANGELES—Sterne Agee has upgradedColony Financial stock from neutral to buy afterthe company released strong 3Q14 reports and announced plans tocombine with Colony Capital. GlobeSt.comreported the possible management combinationyesterday, noting that the deal is valued at $675 million. Inresponse to the announcement, Jason Weaver, ananalyst with Sterne Agee, has raised 4Q14 estimates to $27 pershare, up from $22.50.

“I really haven't changed much about my expectations for thefourth quarter at this point. I think that the results willprobably be a little bit better than I had previously expected, butthe big news here is obviously the prospective combination,” Weavertells GlobeSt.com. “I think it is really a transformative event forthe company; going from being a commercial mortgage REIT to acommercial mortgage REIT that owns its own asset management companyis pretty powerful from a valuation perspective—what you can valuethe stock at in a secondary market.” Weaver calls his $27 pricetarget a “conservative estimate,” adding that we will really haveto see if the deal actually goes through.

Other than announcing the combination, Colony Financial had animpressive 3Q14 with a core and GAAP EPS of $0.38 and $0.30,exceeding core expectations of $0.35, and a book value increase of$18.97 to $19.27. The company added $453 million in assets duringthe quarter, which consisted of $181 million in loan originations,$175 million in loan acquisitions and $97 million of new equityinvestments. “The loan growth, new originations and new assets theyput on the balance sheet was above my expectation, so I think thatis a positive as well,” says Weaver.