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AGNC Investment Corp (AGNC): How Much Growth Is Left In Real Estate?

Thomas Auclair

AGNC Investment Corp (NASDAQ:AGNC) is a USD$8.31B real estate investment trust (REIT). REITs are a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year, and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I’ll take you through the real estate sector outlook, and also determine whether AGNC is a laggard or leader relative to its real estate sector peers. See our latest analysis for AGNC

What’s the catalyst for AGNC’s sector growth?

NasdaqGS:AGNC Past Future Earnings Oct 27th 17

Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw negative growth of -1.44%, underperforming the US market growth of 4.49%. AGNC leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -61.70% compared to the wider REIT sector growth hovering next year.

Is AGNC and the sector relatively cheap?

NasdaqGS:AGNC PE PEG Gauge Oct 27th 17

REIT companies are typically trading at a PE of 8x, lower than the rest of the US stock market PE of 22x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 12.76% compared to the market’s 9.99%, making it a potentially attractive sector. On the stock-level, AGNC is trading at a PE ratio of 5x, which is relatively in-line with the average REIT stock. In terms of returns, AGNC generated 16.80% in the past year, which is 4.04% over the REIT sector.

What this means for you:

Are you a shareholder? AGNC is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of AGNC, there are other REIT companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how AGNC fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If AGNC has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its REIT peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.

For a deeper dive into AGNC Investment’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.