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Should You Hold AGNC Investment Stock in Your Portfolio Now?

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AGNC Investment Corp. AGNC is making diligent efforts to reposition its portfolio, in order to hedge the risks related to interest rates and prepayment uncertainty. Further, the company’s efficient cost structure augurs well. However, market volatility amid challenging interest rate and global economic environment may affect the company’s growth in the near term.

Particularly, this mortgage real estate investment trust (REIT) remains focused to increase investments in mortgage-backed securities (MBS) and improve its hedge portfolio. The company adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio, as well as hedges amid varying interest rate and mortgage market environment.

In addition, the acquisition of American Capital Management, LLC in July 2016 enabled the company to substantially reduce operating costs, providing long-term benefits to the shareholders.

Notably, MBS spreads in the fourth quarter 2018 widened significantly. In addition, amid favorable outlook for returns on Agency MBS, as well as the prevailing interest rate scenario, the company’s efforts to gradually increase its MBS investments were a strategic fit.

Furthermore, the company’s low leverage, as compared to the industry, makes it a safe bet. It has a debt/equity ratio of 0.03, lower than the industry’s average of 1.12. Also, its return on equity is 11.86% compared with the industry’s average of 10.15%. This reflects that the company reinvests more efficiently compared to the industry. AGNC Investment also generates higher cash flow per share of $2.64 compared to the industry’s average of $1.83.

These reflect that AGNC Investment has a decent financial strength. Moreover, the company has solid access to attractive funding across a broad spectrum of counterparties and financing conditions. This provides the company flexibility for opportunistic enhancement of its portfolio.

However, the domestic economy has been losing steam, of late. There is volatility in the fixed-income market, yield curve is flattening and the global economic environment remains choppy. This uneasiness is expected to continue in the near term as well.

Additionally, the company has been witnessing rise in financing cost. This has resulted in a decline in its net spread income. In fact, in the fourth quarter 2018, AGNC’s average cost of funds inclusive of interest rate swap cost, came in at 2.09%, an increase from 1.88% witnessed in the previous quarter. Any hike in interest rates in future will further escalate funding cost and impact the company’s near-term performance.

Shares of AGNC Investment have underperformed the industry it belongs to, in the past three months. During this period, shares of the company have gained 1.2% as compared with the industry’s increase of 2.5%.

AGNC Investment carries a Zacks Rank #3 (Hold), currently.

Key Picks

Chimera Investment Corp’s CIM earnings per share estimates for the current year remained unchanged at $2.17, in the past month. The stock flaunts a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ellington Residential Mortgage REIT’s EARN earnings per share estimates for 2019 remained unrevised, over the past month. Currently, the stock sports a Zacks Rank of 1.

Hunt Companies Finance Trust, Inc’s HCFT  Zacks Consensus Estimate for 2019 earnings per share moved 10% north to 55 cents in a month’s time. The stock flaunts a Zacks Rank of 1, at present.

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Chimera Investment Corporation (CIM) : Free Stock Analysis Report
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Ellington Residential Mortgage REIT (EARN) : Free Stock Analysis Report
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