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What's in Store for AGNC Investment (AGNC) Q2 Earnings?

Zacks Equity Research

AGNC Investment Corp. AGNC is scheduled to report second-quarter 2019 results on Jul 24, after the market closes. The company’s results will likely reflect year-over-year decline 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 52 cents per share, missing the Zacks Consensus Estimate of 56 cents. Further, net interest income (NII) of $164 million came in lower than the prior-year quarter reported figure of $225 million.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion, missed in two and met in the other. It delivered an average negative surprise of 4.7% 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. price-eps-surprise | AGNC Investment Corp. Quote

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

Factors to Consider

Issuance of agency MBS during the April-June quarter surged 43% sequentially. Further, combined issuance by Fan-nie Mae, Freddie Mac and Ginnie Mae hit $330.65 billion.

Moreover, the 30-year mortgage rates declined from 4.08% at the beginning of the second quarter to 3.73% at the end of the quarter, according to figures released by Freddie Mac. This decline left the 30-year rate at its lowest level since late 2016. Following suit, the 15-year fixed rates and 5-year fixed rate declined to 3.16% and 3.39%, respectively.

This, together with recent moderation in housing price and continued strength in the U.S. labor market, indicates optimism in the U.S housing market. Hence, AGNC Investment is expected to have enjoyed opportunities in securitized mortgage securities and mortgage lending market. In fact, with a strong MBS portfolio, the company will likely report decent returns on agency MBS.

Additionally, the company’s efforts to improve hedge portfolio and reduce duration gap will support its second-quarter performance. In addition, it enjoys solid access to attractive funding across a broad spectrum of counterparties and financing conditions.

However, a challenging environment, including higher-than-expected funding costs compared with LIBOR, higher premium amortization and low dollar roll specialness, might impact the company’s performance in the quarter under review. 

Additionally, as AGNC Investment prioritizes risk management over incremental returns, this strategy hinders scope to realize robust returns on its portfolio in the second quarter as well.

Furthermore, an uptick in financing cost, specifically higher average cost of funds inclusive of interest rate swap costs, will likely have impacted the company’s net spread and dollar roll income.

Lastly, there is lack of any solid catalyst prior to the second-quarter earnings release. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share for the to-be-reported quarter remained unrevised at 50 cents, over the past month. It also suggests year-over-year decline of 20.6%.

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

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Boston Properties, Inc. BXP, scheduled to release earnings on Jul 30, has an Earnings ESP of +0.06% and carries a Zacks Rank #3, at present.

Ventas Inc. VTR, slated to report quarterly figures on Jul 26, has an Earnings ESP of +0.38% and carries a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. ARE, set to release June-end quarter results on Jul 29, has an Earnings ESP of +0.15% and currently holds a Zacks Rank #2.

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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
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