11/14/12 - Nomura Securities analysts set 36.50 as target for AGNC
REIT Fears Overblown; Buy American Capital Agency (AGNC) on Weakness
10:56 AM ET, 11/14/2012 - Street Insider
American Capital Agency (NASDAQ: AGNC ) shares were under pressure on Tuesday on a number of concerns, including regulatory and legislative risks, noted a report by analysts at Nomura. In the view of analysts, these concerns are largely overblown.
One of concerns raised by investors comes in the form of the proposed Menendez-Boxer Bill, which some say would further liberalize the HARP Program.
"While investors are justifiably concerned that passage of this bill would increase prepayment risk, our Washington sources suggest that the bill is unlikely to receive enough support to make it through the Senate. Even if it did, the watered-down version is unlikely to make it through the Republican-controlled House," said analyst Bill Carcache.
Press reports also suggest Edward DeMarco could be replaced as the head of the FHFA.
"If this happens (which our Washington sources suggest is unlikely), the consensus view is likely that principal forgiveness will be back on the table, and prepayment speeds will rise significantly," said Carache. "What many investors don t realize is that principal forgiveness is a form of modification. Agency mortgage REITs have already experienced the prepayments associated with principal forgiveness."
Nomura Securities maintained a Buy rating on American Capital Agency (NASDAQ: AGNC) with a price target of $36.50.
For an analyst ratings summary and ratings history on American Capital Agency click here. For more ratings news on American Capital Agency click here.
Shares of American Capital Agency closed at $29.58 yesterday, with a 52 week range of $27.61-$36.77.
Demarco's scenario-based analysis of principal reduction was spot on and Geithner's letter to Demarco opposing the FHFA's analysis and decision shows how little Treasury knows about the topic and why they should stay out of FHFA's wheelhouse.
Obama's staff has been whispering to housing activists that "the boss will replace Demarco this year", but they forget the fact that the 2008 law that created FHFA restricts who can be appointed as the agency's "acting director." Under the law, President Barack Obama would have to choose among three deputy directors at FHFA, two of whom were hand-picked by DeMarco. And the third? It's DeMarco himself, who remains FHFA's deputy director for housing mission and goals. Demarco and his deputies all think alike on the topic of "principal reduction" --- they helped author the research paper on the topic available on the FHFA website.
Nomura has it correct. Also ----Menedez-Boxer is DOA in both the Senate and the House.