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Annaly (NLY) Up 1.8% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·3 min read
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It has been about a month since the last earnings report for Annaly Capital Management (NLY). Shares have added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Annaly due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Annaly Q4 Earnings Meet Estimates, Book Value Up Q/Q

Annaly reported fourth-quarter 2020 core earnings, excluding premium amortization adjustment (PAA), of 30 cents per share that met the Zacks Consensus Estimate. Moreover, the figure compared favorably with the year-ago quarter’s 26 cents.

NII was $432.7 million, surpassing the Zacks Consensus Estimate of $420.9 million. However, it compared unfavorably with the year-ago quarter’s $454.2 million.

While the decline in cost of interest-bearing liabilities supported Annaly, continued fall in average yield on interest-earning assets was spoilsport. Nonetheless, the company registered sequential improvement in book value per share (BVPS).

For 2020, Annaly reported core earnings, excluding PAA per share of $1.10, up 10% from the prior year’s $1 and also outpaced the Zacks Consensus Estimate of $1.09.  NII of $1.33 billion jumped 32.7% year over year and also outpaced the Zacks Consensus Estimate of $1.32 billion.

Inside the Headlines

As of the fourth-quarter end, the company had $101.6 billion of total assets, which included $94.6 billion in a highly-liquid Agency portfolio. Moreover, at the fourth-quarter 2020 end, unencumbered assets stood at $8.7 billion.

Markedly, Annaly modestly increased capital allocation to credit businesses to 22% from 20% in the fourth quarter.

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 2.80%, down from the prior quarter’s 2.86%.

Moreover, net interest spread (excluding PAA) of 1.93% for the fourth quarter was stable from the prior quarter. Net interest margin (excluding PAA) in the quarter was 1.98 % compared with 2.05% witnessed in third-quarter 2020.

Annaly’s book value per share was $8.92 as of Dec 31, 2020, sequentially up 2.5%. However, BVPS compared unfavorably with $9.66 as of Dec 31, 2019. At the end of the December quarter, the company’s capital ratio was 13.6%, unchanged from third-quarter 2020.

For the December-end quarter, weighted average actual CPR was 24.7%, up from 22.9% witnessed in third-quarter 2020.

Economic leverage was 6.2:1 as of Dec 31, 2020, stable from Sep 30, 2020. The company offered an annualized core return on average equity (excluding PAA) of 13.03% in the October-December period, down from the prior quarter’s 13.79%.

Share repurchased of common stock for 2020 amounted to $209 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Annaly has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Annaly has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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