I bought in recently at $10.48 mainly due to the dividends. Heres hoping the stock goes up so we all can profit.
Despite the recent miss on earnings by Annaly Capital Management Inc. (NYSE: NLY), analysts are still viewing this mortgage real estate investment trust (REIT) giant favorably. In fact, Sterne Agee issued a call that maintained a Buy rating for Annaly with a price target of $12.75 due to an attractive discount to book value and stable net interest rate.
The fourth-quarter earnings fell short of Sterne Agee’s expectations as leverage remained low and interest expense came in higher than expected on hedging costs. At the same time, book value per share increased to $13.10 — barely short of Sterne Agee’s estimate of $13.12.
Book value per share grew by 1.8% from $12.87 sequentially. The increase was the result of narrowing agency mortgage-backed securities spreads, which were driven mostly by spreads catching up to a moderation of the interest rate rally last quarter.
Although Sterne Agee considers the book value very attractive at the moment, it is reducing its 2015 and 2016 estimates of core earnings per share (EPS). The 2015 EPS estimate was reduced to $1.15 from $1.18 and 2016 EPS estimate was reduced to $1.00 from $1.01. These changes to the estimates reflect Sterne Agee’s view of forward yields, prepayments and leverage, which should remain robust for the medium term.
Annaly trades at nine-times EPS estimates for 2015, which is relatively cheap compared to the broad markets at current prices, and just a little higher for 2016 estimates at 10.6 times.
The firm stated its outlook for the future as:
For the short and medium term, we reiterate our Buy rating as a compelling total return opportunity. The stock remains at a 20% discount to book value and combined with the 11% yield makes for a ~30% annualized expected return to our price target. We further expect the shares to fare favorably if broader markets’ weakness from global macroeconomic and political fears takes hold.
On Tuesday, Annaly Capital Management reported a fourth-quarter net loss of $658 million thanks principally to the mortgage REIT's strategy of hedging its exposure to higher interest rates. The results confirmed what many analysts already knew -- namely, that the final three months of 2014 would offer no shelter to the embattled mortgage REIT space.
The problem isn't so much with Annaly itself, though its hedging strategy certainly hasn't paid off thus far; the issue instead is with the prevailing interest rate environment.
It's important to remember that mortgage REITs make money by arbitraging interest rates. They borrow at low short-term rates, typically in the so-called "repo" market, and then invest the funds in higher-yielding long-term mortgage-backed securities.
This is a great business model under two conditions -- first, when there is a large spread between low short-term and high long-term rates, which allows mortgage REITs to essentially print money. We saw this happen during and immediately after the financial crisis, when companies such as Annaly and others reported record earnings.
The second condition is when long-term interest rates are falling. Because mortgage-backed securities are fixed-rate instruments, their value is inversely related to interest rates. When interest rates go up, the value of these securities goes down. When interest rates go down, the value of these securities goes up. That's why companies like Annaly hedge their portfolios against interest rate increases.
You can see these forces at work in Annaly's fourth-quarter results. Starting at the top, it earned $514 million in net interest income from arbitraging interest rates. But it then took a $1.1 billion loss in its hedging portfolio, suggesting that Annaly is positioned for the uptick in long-term rates that analysts have been predicting now for over a year.
Yes. It's simple. You picked a loser here. Look at the broader markets for gods sake. Compare charts against NLY. Tells the story here. And don't give me the dividend speech either.
The book value is NOT what you posted. They have a negative EPS which means they are bleeding cash even at this low price per share. Could it be that insiders are skimming all the profits with their options, free shares and HUGE multi million dollar yearly salaries? Hmmm-Seems like it's all finally catching up to them.
I have owned NLY for 4 yrs and have an annual avg. return of 2%. Dripping all my dividends. Same as a 10 yr bond or thereabouts. It's a lousy stock but I haven't wanted bonds. I still say NLY over 10 yrs beats the 10 yr. that's how I've always looked at it.
The best thing that can happen is treading water. There will not be a rate increase this year and likely later in 2016, if at all, as 2016 is an election year and the Fed hates to ess with rates in an election year. The economy is weak, consumption habits in the country have been downsized for decades to come, household debt is rising again, wage inflation is modest and the sequester will continue to reign in government spending. Add to this lower energy costs, rapidly advancing efficiencies coming in energy management and demand and these same lowered costs/demand working into the price of goods and services and we will see negligible inflation for the rest of the decade. In this environment the reits can increase leverage, lower hedging costs and increase net interest income for years to come.
Sentiment: Strong Buy
They bought into the Fed speak and the reduction of monthly MBS/Treasuries buying having a big effect on rates. Well, it did. It sent them into the dumper. They were all 180 degrees out of whack with reality.
Sentiment: Strong Buy
if u held for 5 years not at break even now. only way to make money here is to trade the rips and try and get as many div as u can with out getting crushed in sell off
who is the idiot u have a strong buy on the team u r trashing. but u r right they should have known rates were not going up that much
you are right, all I have is a "hunch" that I have had for over a decade that this is a "ten dollar stock". It is now below book by a goodly margin. At present I am short a few March 27, 2015 $10.50 puts. If I get put at "$10.50, I will sell $10.50 calls. If I don't get put I will resell puts a month or two out and repeat same for the next decade. Wish me luck!
For the same reason I would be less interested in buying a stock long that has outperformed for 4 years. I see it continuing pretty much what it's been doing for 4 years, going down a little more than the yield pays you.
And I'm not nearly as convinced as you that NLY is at the bottom. Based on what? What do you see that is going to break the down cycle?
that sounds like the "sell at the bottom" strategy.........never worked for me. If you have the courage of your convictions why aren't you selling short?