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Why Is AGNC Investment (AGNC) Down 0.4% Since Last Earnings Report?

Zacks Equity Research
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It has been about a month since the last earnings report for AGNC Investment (AGNC). Shares have lost about 0.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AGNC Investment due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AGNC Investment Q2 Earnings Top Estimates, NII Down

AGNC Investment reported second-quarter 2018 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. Moreover, the figure came in higher than the prior-quarter tally of 60 cents per share.

Further, the company reported second-quarter comprehensive income per common share of 34 cents, way above the 53 cents of comprehensive loss recorded in the prior quarter.

Also, as of Jun 30, 2018, the company’s tangible net book value per share came in at $18.41, down from $19.63 as of Jun 30, 2017.

The economic return on tangible common equity for the company during the reported quarter was 1.7%. This included dividend per share of 54 cents and a decrease of 22 cents in tangible net book value per share.

NII of $177 million declined from the prior-quarter figure of $225 million.

Inside the Headlines

As of Jun 30, 2018, the company’s investment portfolio aggregated $77.1 billion. This included 76.1 billion of agency MBS and to-be-announced (TBA) securities, $1 billion of credit risk transfer (CRT) and non-agency securities and $46 million of common stock of MTGE Investment Corp.

Inclusive of its net TBA position and net payable/ (receivable) for unsettled securities, AGNC Investment’s tangible net book value "at risk" leverage ratio was 8.3x as of Jun 30, 2018, compared with 8.2x as of Mar 31, 2018.

For the April-June quarter, the company's investment portfolio bore a weighted average constant repayment rate (CPR) of 9.7%, down from 8.6% in the last-reported quarter.

Excluding net TBA position, AGNC Investment's average asset yield came in at nearly 2.99% for the reported quarter, up from 3.05% recorded in the previous quarter.

For the second quarter, combined average cost of funds inclusive of interest rate swap costs, came in at 1.67%, an increase from 1.68% witnessed in the prior quarter.

Annualized net interest spread, including TBA dollar-roll income (excluding estimated catch-up premium amortization benefit), for the quarter came in at 1.35%, up from 1.26% reported last quarter.

Also, as of Jun 30, 2018, AGNC Investment’s cash and cash equivalents totaled around $863 million, down from $972 million as of Mar 31, 2018.

Dividend Update

In the quarter under review, AGNC Investment announced monthly dividends of 18 cents per share for April, May and June. Notably, the company had announced a total of $8 billion in common stock dividends or $38.24 per common share, since its initial public offering in May 2008, through second-quarter 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, AGNC Investment has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, AGNC Investment has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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