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What's in the Cards for Annaly Capital (NLY) in Q1 Earnings?

Zacks Equity Research

Annaly Capital Management Inc. NLY is scheduled to report first-quarter 2019 results on May 1, after the market closes. The company’s earnings per share (EPS) will likely decline year over year (y/y).

In the last reported quarter, this mortgage real estate investment trust (REIT) posted core earnings of 29 cents per share, surpassing the Zacks Consensus Estimate of 28 cents. However, net interest income (NII) totaling $272.9 million, witnessed a sequential decline of around 13.5% in the fourth quarter.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on two occasions and met in the other two. It delivered an average positive surprise of 1.76% during this period. The graph below depicts this surprise history:

Annaly Capital Management Inc Price and EPS Surprise

Annaly Capital Management Inc Price and EPS Surprise | Annaly Capital Management Inc Quote

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

Factors at Play

Following a turbulent fourth-quarter 2018, the agency MBS sector benefited from the Fed’s dovish stance. In fact, per data, in the first quarter, agency MBS recovered nearly half of negative excess return incurred in 2018 by posting excess return of 28 basis points (bps) compared to treasuries.

This is expected to drive Annaly’s first-quarter 2019 returns, which primarily invests in agency MBS. Further, in a bid to diversify the investment portfolio, the company has been aiming to expand its holding in credit-focused asset classes. Since credit-focused residential investments are less affected by rate volatility, these strategic investments will likely lent support to the company in the quarter under review.

Also, stable interest rates are expected to reduce agency prepayments and improve sentiments across the broader mREIT sector.

Additionally, it raised nearly $840 million in gross proceeds through an overnight common stock offering in January. This will likely open up ample investment opportunities for the company to expand its three credit businesses.

Further, Annaly is anticipated to have benefited from a diverse funding profile and impressive liquidity position. Notably, with easy access to financing capital, the company has likely enjoyed flexibility in the opportunistic enhancement of its portfolio.

However, U.S. housing activity was dismal in the March-end quarter. In fact, the first quarter is seasonally slower for housing activity, as compared with the second and third quarters that are key home-buying seasons. This is likely to impact the company’s mortgage origination business.

In addition, the U.S. treasury yield curve inversion and weaker U.S. economic fundamentals might act as dampeners for the company in the to-be-reported quarter. Furthermore, interest rate volatility and wider Agency MBS spreads in the January-March quarter might affect Annaly’s net book value.

Lastly, Annaly’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for first-quarter FFO remained unchanged at 29 cents in a month’s time. In addition, it indicates a 3.3% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Annaly 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: Annaly’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 2, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Several other players in REIT space are lined up to report their 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.

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.30% and currently carries a Zacks Rank of 2.

Park Hotels & Resorts Inc. PK, slated to report first-quarter results on May 9, has an Earnings ESP of +0.24% and holds a Zacks Rank of 2, at present.

Welltower, Inc. WELL, set to report quarterly numbers on Apr 30, has an Earnings ESP of +0.58% and carries a Zacks Rank of 3, currently.

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Annaly Capital Management Inc (NLY) : Free Stock Analysis Report
 
Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
 
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