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AGNC Investment (AGNC) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

AGNC Investment Corp. AGNC is scheduled to report fourth-quarter 2018 results on Jan 30, after the market closes. The company’s results will likely reflect year-over-year decline in its net spread and dollar roll income per common share.

In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (mREIT), which primarily focuses on leveraged investments in agency MBS (mortgage backed securities), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 61 cents per share, meeting the Zacks Consensus Estimate. Further, net interest income (NII) of $188 million came in higher than the prior-quarter figure of $177 million.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in another and met in the other two. It delivered average negative surprise of 0.01% during this period. The graph below depicts this surprise history:

AGNC Investment Corp. Price and EPS Surprise

AGNC Investment Corp. Price and EPS Surprise | AGNC Investment Corp. Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

In the Dec-end quarter, AGNC Investment is expected to have benefited from an impressive financial position. Notably, it enjoys solid access to attractive funding across a broad spectrum of counterparties and financing conditions.

Further, in November, the company injected fresh capital by issuing 46 million shares of common stock, for total gross proceeds of $794.4 million. These fresh funds were used to purchase agency securities, non-agency securities, other mortgage-related assets and hedging instruments, thereby, enhancing the company’s portfolio quality.

However, the consecutive rate hikes are expected to have hindered its fourth-quarter and 2018 performance. This, along with an uncertain global economic environment, has compelled AGNC Investment to adjust its investment portfolio.

Hence, as the company focuses on risk management, it is less likely to report incremental returns. Furthermore, higher interest rate might impede the company’s bottom-line performance and its book value as well. In fact, as of Nov 30, 2018, its tangible net book value stood at $16.76 per common share, a decline of 18 cents from the previous quarter.

Additionally, a spike in fixed-income volatility and escalating trade tensions are anticipated to have acted as dampeners in the fourth quarter. Moreover, increase in market volatility, higher interest rates and yield curve flattening will likely have resulted in MBS spread widening, thereby, impacting the company’s quarterly performance. 

Hence, there is lack of any solid catalyst prior to the fourth-quarter earnings release. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common sharefor the to-be-reported quarter remained unrevised at 61 cents, over the past month. Furthermore, it reflects a year-over-year decline of 1.6%. 

In addition, its 2018 net spread and dollar roll income per common share estimate has been revised marginally downward to $2.44, over the past month. This also reflects a year-over-year decline of 0.8%. 

Earnings Whispers

Our proven model does not conclusively show that AGNC Investment is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: AGNC Investment’s Earnings ESP is +0.83%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell), which decreases the predictive power of ESP.

Stocks That Warrant a Look

While the other players in this space are lined up to report their financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ladder Capital Corp LADR, expected to report fourth-quarter results around Feb 26, has an Earnings ESP of +3.53% and holds a Zacks Rank of 3.

Boston Properties, Inc. BXP, slated to release earnings on Jan 29, has an Earnings ESP of +0.33% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. OHI, scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and sports a Zacks Rank of 1.

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