What's in the Cards for AGNC Investment's (AGNC) Q3 Earnings?
AGNC Investment Corp. AGNC is scheduled to report its third-quarter 2023 results on Oct 30, 2023, after the closing bell. The company’s results are expected to reflect a year-over-year decline in earnings, while the top line is likely to rise.
This Bethesda, MD-based mortgage real estate investment trust (mREIT) posted a second-quarter 2023 net spread and dollar roll income per common share (excluding estimated "catch-up" premium amortization costs) of 67 cents beat the Zacks Consensus Estimate of 58 cents. Adjusted net interest and dollar roll income (excluding estimated "catch-up" premium amortization costs) of $493 million remained flat with the quarter-ago reported level.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions. It has an earnings surprise of 14.8%, on average, for the said period. The graph below depicts the surprise history:
AGNC Investment Corp. Price and EPS Surprise
AGNC Investment Corp. price-eps-surprise | AGNC Investment Corp. Quote
Let’s see how things have shaped up prior to the third-quarter earningsannouncement.
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.
Nonetheless, lower levels of refinancing are anticipated to have reduced prepayment speed and alleviated pressure from AGNC’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. Also, we expect an interest income of $478.5 million, suggesting a 28.3% year-over-year rise.
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 interest expenses in the third quarter. We expect the same to be $168.2 million in third-quarter 2023.
With this, the consensus estimate for third-quarter NII of $310 million indicates a 75.2% rise from the year-ago reported figure.
High volatility, wide spreads and an increase in benchmark rates resulted in a challenging environment in the third quarter of 2023 for the fixed-income markets. Amid the market turbulence, Agency mortgage-backed securities (MBS) are expected to have underperformed. This is likely to have affected AGNC Investment’s book value.
Greater volatility in the fixed-income markets is likely to have increased asset impairment risks and hedging mismatches for AGNC Investment in the quarter under review. In anticipation of a potential recession, spread widening and higher volatility, the company is expected to have rotated into agency assets from credit-sensitive assets.
Spread widening is also expected to have resulted in unrealized gains on investments for AGNC Investment in third-quarter 2023.
The company’s activities in the quarter were inadequate to gain analysts’ confidence. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share has been unrevised to 54 cents in the past month. Also, it indicates a fall of 35.7% from the year-ago reported figure. We estimate the metric to be 51 cents in the quarter to be reported.
Earnings Whispers
Our proven model does not show that AGNC Investment is likely to beat estimates this quarter. This is because a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: AGNC Investment’s Earnings ESP is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank of 2.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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
AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
