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AGNC Investment's (AGNC) Stock Up 3.5% on Q3 Earnings Beat

Zacks Equity Research

Shares of AGNC Investment Corp. AGNC rallied 3.5% in full-day trading session post the company’s third-quarter earnings release. This was most likely driven by positive shareholder sentiment on its earnings beat.

Notably, AGNC Investment reported third-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 59 cents per share, beating the Zacks Consensus Estimate of 48 cents. However, the reported tally came in lower than the prior-year figure of 61 cents per share.

The company reported third-quarter comprehensive income per common share of 42 cents, significantly higher than the prior-year quarter’s tally of 3 cents per share. Net interest income (NII) of $119 million came in lower than the prior-year quarter figure of $188 million.

Also, as of Sep 30, 2019, the company’s tangible net book value per share came in at $16.55, marginally down from $16.58 as of Jun 30, 2018. Further, it compares unfavorably with the tangible net book value per share of $18 as of Sep 30, 2018. 

The economic return on tangible common equity for the company during the third quarter was 2.7%. This included dividend per share of 48 cents and a decrease of 3 cents in tangible net book value per share.

Inside the Headlines

As of Sep 30, 2019, the company’s investment portfolio aggregated $102.6 billion. This included $99 billion of agency mortgage backed securities (MBS), $1.9 billion of to-be-announced (TBA) securities, and $1.7 billion of credit risk transfer and non-agency securities.

Inclusive of its net TBA position and net payable/ (receivable) for unsettled securities, AGNC Investment’s tangible net book value "at risk" leverage ratio was 9.8x as of Sep 30, 2019, unchanged from Jun 30, 2019.

For the September-end quarter, the company's investment portfolio bore a weighted average constant prepayment rate (CPR) of 13.5%, up from the 9.7% witnessed in third-quarter 2018.

Excluding net TBA position, AGNC Investment's average asset yield on its portfolio, excluding the net TBA position, came in at 2.91% in the third quarter, down from the 2.99% recorded in the previous quarter.

For the July-September quarter, combined average cost of funds inclusive of interest rate swap costs came in at 1.85%, decreasing from the 2.24% witnessed in the previous quarter.

Combined annualized net interest spread (excluding estimated catch- up premium amortization benefit), came in at 1.31%, up from the 1.3% reported in prior-year quarter.

Also, as of Sep 30, 2019, AGNC Investment’s cash and cash equivalents totaled $906 million, down from $921 million as of Dec 31, 2018.

Dividend Update

During the third quarter, AGNC Investment announced monthly dividend of 16 cents per share for April, May and June, respectively. Notably, the company announced a total of $9.3 billion in common stock dividends or $40.84 per common share since its initial public offering in May 2008 through third-quarter 2019.

Conclusion

Amid disappointing global economic indicators and escalating trade tensions, the financial-market volatility flared up during the July-September period. This resulted in a decline in interest rates and flattening of the yield curve. 

Furthermore, lower rates resulted in higher prepayment expectations, thereby impacting spreads on Agency MBS. This undermined the performance of AGNC Investment’s investment portfolio.  

Despite the challenging market conditions, economic return on tangible common equity for the reported quarter remained healthy.

AGNC Investment Corp. Price, Consensus and EPS Surprise
 

AGNC Investment Corp. Price, Consensus and EPS Surprise


AGNC Investment Corp. price-consensus-eps-surprise-chart | AGNC Investment Corp. Quote

AGNC Investment currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Mack-Cali Realty Corp’s CLI third-quarter 2019 core FFO per share of 38 cents missed the Zacks Consensus Estimate by a whisker. The figure also compared unfavorably with the year-ago quarter’s reported tally of 43 cents.

American Tower Corporation AMT reported third-quarter consolidated adjusted AFFO per share of $2, beating the Zacks Consensus Estimate of $1.96. Further, the reported figure improved 8.1%, year over year.  

Ventas, Inc. VTR delivered third-quarter 2019 normalized FFO per share of 96 cents, beating the Zacks Consensus Estimate of 94 cents. However, the figure came in lower than the year-ago tally of 99 cents.

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