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AGNC Investment (AGNC) Prices Equity Offering of 40M Shares

Devyani Chamira
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AGNC Investment Corp. AGNC recently announced the pricing of its public offering of 40,000,000 shares of common stock, for expected gross proceeds of $690.8 million, before underwriting discounts and commissions and estimated expenses.

Further, the underwriters have been granted a 30-day option to purchase up to an additional 6,000,000 common shares. The offering, subject to customary closing conditions, will likely close on or around Nov 19, 2018.

AGNC plans to spend these proceeds for targeted acquisitions of various securities. This consists of both agency securities and non-agency securities, including credit risk transfer securities. The company will also allocate funds for general corporate purposes. In addition, it plans to increase its investment in real estate-related assets and hedging instruments.

Amid challenging interest rate and volatile global economic environment, AGNC’s strategy to hedge interest-rate uncertainty augurs well. It provides the company more protection against net asset value fluctuations due to interest-rate changes.

Understandably, the company maintained an elevated interest rate hedge position in the first three quarters of 2018. This enabled AGNC to limit the impact of rising interest rates on its tangible net book value.

Also, the company’s debt/equity ratio of 0.03 is well below its industry’s average of 1.17. Hence, this equity offering is not expected to adversely impact the company’s financial flexibility.

AGNC currently carries a Zacks Rank #3 (Hold). Moreover, the Zacks Consensus Estimate for earnings per share estimates for the ongoing quarter moved marginally upward to 61 cents, over the last month.

However, the company’s tangible net book value remains vulnerable to wider mortgage spreads. Furthermore, as the company prioritizes risk management over incremental returns, robust returns are expected to remain elusive in the short run.

Also, shares of AGNC have underperformed the industry it belongs to, in the past six months. The company’s shares have lost 5.8%, as against the industry growth of 0.1%, during this time period.

Other Key Picks

Other top-ranked stocks in the same space include Ares Commercial Real Estate Corporation ACRE, Hannon Armstrong Sustainable Infrastructure Capital, Inc. HASI and Ladder Capital Corp LADR. All three stocks carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ares Commercial’s earnings per share estimates for the current year has moved up 3% to $1.36 in the past month. The stock has rallied 7.6% over the past six months.

Hannon Armstrong’s Zacks Consensus Estimate for 2018 earnings per share inched up 1.5% to $1.33 over the past 30 days. Its shares have gained 24.4% in the past six months.

Ladder Capital’s earnings per share estimates for 2018 moved 4.4% north to $1.91 over the past month. Its shares have appreciated 13.5% in six months’ time.

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