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AGNC Investment (AGNC) Beats on Q3 Earnings, Up Q/Q

Zacks Equity Research

AGNC Investment Corp. AGNC reported third-quarter 2016 net spread and dollar roll income of 64 cents per share (excluding estimated "catch-up" premium amortization benefit) that beat the Zacks Consensus Estimate of 55 cents. The reported figure also came higher than 56 cents earned in the prior quarter.

Third quarter comprehensive income per common share was $1.25 compared with 73 cents recorded in the prior quarter.

The economic return on equity for the company during the quarter was a positive 5.6%. This reflected dividend per share of 56 cents and a 69 cents rise in net book value per share.
 

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The company’s annualized economic income on common equity was 22.4% compared with 13.3% in the prior quarter. Moreover, as of Sep 30, 2016, the company’s net book value per share was $22.91, up from $22.22 as of Jun 30, 2016. This rise was attributed to interest rate hedges outperforming agency mortgage backed securities (“MBS”).

Notably, net interest income (“NII”) of $219 million missed the Zacks Consensus Estimate of $235 million. However, it came in higher than the prior-quarter figure of $217 million.

Inside the Headlines

As of Sep 30, 2016, the company’s investment portfolio aggregated $62.9 billion of agency MBS, to-be-announced (TBA) securities and AAA non-agency MBS. This included $15.6 billion of TBA mortgage position and $0.1 billion of AAA non-agency MBS.

Inclusive of its net TBA position, AGNC Investment’s "at risk" leverage ratio was 7.7x as of Sep 30, 2016, up from the prior-quarter figure of 7.2x. For the third quarter, the company’s investment portfolio bore a weighted-average constant repayment rate of 14.3% compared with 11.8% in the prior quarter.

Average asset yield on its "balance sheet funded assets" (investment portfolio excluding the net TBA position) was 2.60% for the third quarter, up from 2.46% in the prior quarter. Moreover, combined annualized net interest rate spread on the company’s balance sheet and dollar roll funded assets for the quarter was 1.42% compared with 1.16% in the prior quarter.

Also, as of Sep 30, 2016, AGNC Investment’s cash and cash equivalents totaled around $1.25 billion, up from $1.13 as on Jun 30, 2016.

Dividend Update

In the third quarter, AGNC Investment declared monthly dividends of 20 cents per share for July, August and September. Notably, the company disbursed a total of $6.6 billion in common dividends or $34.46 per common share, since its initial public offering in May 2008.

Conclusion

We expect AGNC Investment to remain range-bound in the near term, given the current market volatility. However, the rise in book value is encouraging. The company’s concerted measures to reposition its portfolio for meeting the current rate environment are expected to help it sail through the difficult times.

AGNC Investment currently has a Zacks Rank #3 (Hold). Over the past one month, its quarterly estimates have remained unchanged at 55 cents.

AGNC INVESTMENT Price, Consensus and EPS Surprise

 

AGNC INVESTMENT Price, Consensus and EPS Surprise | AGNC INVESTMENT Quote

Some top-ranked REITs include Apollo Commercial Real Estate Finance, Inc. ARI, Chimera Investment Corporation CIM and Jernigan Capital, Inc. JCAP. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past one month period, the quarterly estimates for Apollo Commercial Real Estate, Chimera Investment Corporation and Jernigan Capital have remained unchanged at 47 cents, 56 cents and 46 cents, respectively.

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