Annaly (NLY) Up 17.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Annaly Capital Management (NLY). Shares have added about 17.5% 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 Tops Q3 Earnings Estimates, Reports Negative NII
Annaly reported third-quarter EAD per average share of 66 cents, which surpassed the Zacks Consensus Estimate of 65 cents. The figure declined from $1.06 in the year-ago quarter.
Per management, “Annaly entered the quarter with lower leverage and substantial liquidity, which, along with our dynamic hedging, enabled us to remain nimble. Despite our active portfolio management, higher rates and spreads weighed on our book value and economic return for the quarter. While risks to the operating environment persist, we expect to benefit from attractive investment returns across our three businesses and a supportive financing environment. Within Agency MBS, historically wide spreads provide ample compensation for above average volatility and technical challenges.”
Inside the Headlines
NII was negative $45.33 million in the reported quarter against the Zacks Consensus Estimate of $330 million. In the prior-year quarter, the company reported $277.99 million in NII.
At the third-quarter end, Annaly had $89.6 billion of total assets, up marginally from the prior quarter. At the end of the quarter, unencumbered assets were $4.7 billion.
In the reported quarter, the average yield on interest-earning assets (excluding premium amortization adjustment or PAA) was 4.49%, up from the prior-year quarter’s 3.47%. The average economic costs of interest-bearing liabilities were 3.28%, increasing from 1.54%.
Net interest spread (excluding PAA) of 1.18% in the third quarter fell from 1.70% in the prior-year quarter. Also, the net interest margin (excluding PAA) was 1.48% compared with 1.98% in third-quarter 2022.
Annaly’s BVPS was $18.25 as of Sep 30, 2023, down 8.5% from $19.94 in the prior-year quarter. At the end of the reported quarter, the company’s economic capital ratio was 13.1%, up from 11.8% in the prior-year quarter.
In the third quarter, the weighted average actual constant prepayment rate was 7.3%, sequentially up from 7%.
Economic leverage was 6.4X as of Sep 30, 2023, up from 5.8X sequentially but down from 7.1X in the prior-year quarter. Annaly generated an annualized EAD return on average equity (excluding PAA) of 12.96% in the third quarter, down from the prior-year quarter’s 17.57%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Annaly has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 these revisions 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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Annaly Capital Management Inc (NLY) : Free Stock Analysis Report
