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What's in Store for AGNC Investment (AGNC) in Q3 Earnings?

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AGNC InvestmentCorp. AGNC is scheduled to report third-quarter 2018 results on Oct 24, after the market closes. The company’s results will likely reflect year-over-year growth in its net spread and dollar roll income per common share.

In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (REIT), which primarily focuses on leveraged investments in agency MBS (mortgage backed securities), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 63 cents per share, surpassing the Zacks Consensus Estimate of 62 cents. However, net interest income (NII) of $177 million declined from the prior-quarter figure of $225 million.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in two and met in the other. It delivered an average negative surprise of 1.6% during this period. The graph below depicts this surprise history:

AGNC Investment Corp. Price and EPS Surprise

AGNC Investment Corp. Price and EPS Surprise | AGNC Investment Corp. Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

AGNC Investment’s Sep-end quarterly results are expected to benefit from the company’s efforts to reposition its portfolio, and offset risks related to interest rates and prepayment uncertainty. In fact, the company’s efforts to improve hedge portfolio and reduce duration gap will support its third-quarter performance.

Also, an impressive financial position is expected to have supported AGNC Investment’s efforts to enhance its portfolio. Notably, it enjoys solid access to attractive funding across a broad spectrum of counterparties and financing conditions.

Further, in August, the company raised fresh capital by issuing 43.7 million shares of common stock for total gross proceeds of $825.9 million. Proceeds from the share offering were used to purchase agency securities, non-agency securities, other mortgage-related assets and hedging instruments, and for other general corporate purposes.

However, yield-curve flattening and escalating trade tensions have elevated concerns over global economies and acted as dampeners in the Jul-Sep quarter. In addition, spike in interest rates and volatility is anticipated to have increased risk premiums across asset classes and widening of MBS spreads.

Moreover, the company prioritizes risk management over incremental returns. Although this is a strategic decision by the company given the volatility in the current market, it hinders scope for the company to realize robust returns on its portfolio in the third quarter as well.

Furthermore, higher interest rate may impede the company’s bottom-line performance and its book value.

Hence, there is lack of any solid catalyst prior to the third-quarter earnings release. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common sharefor the to-be-reported quarter remained unrevised at 61 cents, over the past month. Nonetheless, it reflects year-over-year growth of 3.39%. 

Earnings Whispers

Our proven model does not conclusively show that AGNC Investment is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: AGNC Investment’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

While the other players in this space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank stocks here.

Granite Point Mortgage Trust Inc. GPMT, slated to report third-quarter results on Nov 5, has an Earnings ESP of +1.7% and holds a Zacks Rank of 2.

Hannon Armstrong Sustainable Infrastructure Capital, Inc HASI, set to release Jul-Sep quarter figures on Nov 7, has an Earnings ESP of +7.69% and a Zacks Rank of 3.

Two Harbors Investments Corp TWO, scheduled to report quarterly numbers on Nov 6, has an Earnings ESP of +0.7% and carries a Zacks Rank of 3.

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