Can Annaly (NLY) Retain Its Beat Streak in Q3 Earnings?
Annaly Capital Management Inc. NLY is scheduled to report third-quarter 2023 results on Oct 25, after market close. The company’s results are expected to reflect declines in earnings from the year-ago reported figure, while net interest income (NII) is expected to have increased.
In the last reported quarter, the mortgage real estate investment trust (mREIT) posted earnings available for distribution per share of 72 cents, which surpassed the Zacks Consensus Estimate of 69 cents. Results were supported by improvements in the average yield on interest-earning assets. However, the company registered a year-over-year decline in book value per share.
Annaly’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 5.81%. The graph below depicts this surprise history:
Annaly Capital Management Inc Price and EPS Surprise
Annaly Capital Management Inc price-eps-surprise | Annaly Capital Management Inc Quote
Let’s see how things have shaped up prior to the third-quarter earnings announcement.
The mREIT sector was under pressure in the third quarter due to high volatility in the fixed-income markets. The widening of the spread is expected to have affected the tangible book values of the industry players.
As for NLY, the company does not seem to be immune from a challenging macro backdrop. Book value is expected to have deteriorated in the third quarter due to higher rates, mortgage spread widening and an expected decline in valuations on NLY’s Agency position.
Moreover, we anticipate the company to have recorded unrealized losses on investments due to spread widening in the third quarter.
Federal Reserve raised interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th time FOMC has hiked interest rates in a tightening process that began in March 2022. In September, the rate hike was paused. With this, interest rates reached 5.25-5.5% in the third quarter, marking the highest level in around 22 years.
Given the rise in interest rates in the quarter, the company is expected to have seen higher funding costs. This is likely to have increased costs of interest-bearing liabilities for NLY in the third quarter.
Mortgage rates continued to increase in the third quarter, with the rate on a 30-year fixed mortgage reaching 7.31% in September, the highest level in nearly 23 years. The climb in mortgage rates, which kept home buyers on the sidelines, led to a smaller origination market, both purchase and refinancing, than the prior-year quarter.
Lower levels of refinancing are anticipated to have reduced prepayment speed and alleviated pressure from Annaly’s MBS holdings. This is expected to have reduced net premium amortization in the third quarter, offering scope for growth in interest income and average asset yield.
The consensus estimate for third-quarter NII of $330 million indicates an 18.7% rise from the year-ago reported figure.
Lastly, the company’s activities in the third quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for third-quarter earnings has been unrevised at 72 cents in a month. This indicates a year-over-year decline of 32%.
Earnings Whispers
Our proven model does not show that an earnings beat is likely for NLY this time around. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Annaly has an Earnings ESP of 0.00%.
Zacks Rank: Annaly currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
Two stocks from the broader REIT sector, which you may want to consider as our model shows that these have the right combination of elements to report a surprise this time around, are Welltower WELL and Simon Property Group SPG.
Welltower is slated to report its quarterly numbers on Oct 30. WELL presently has an Earnings ESP of +0.45% and a Zacks Rank of 2 (Buy).
Simon Property is slated to report its quarterly numbers on Oct 30. SPG has an Earnings ESP of +0.12% and a Zacks Rank of 3 at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
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Welltower Inc. (WELL) : Free Stock Analysis Report
