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What's in the Offing for AGNC Investment (AGNC) Q2 Earnings?
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AGNC Investment Corp. (AGNC - Free Report) is scheduled to report second-quarter 2020 results on Jul 27, after the closing bell. The company’s net spread and dollar roll income per common share is expected to have declined year over year, while net interest income (NII) is expected to have improved.
In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (mREIT), which primarily focuses on leveraged investments in agency mortgage backed securities (MBS), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 57 cents per share, beating the Zacks Consensus Estimate of 56 cents. However, NII of $65 million lagged the Zacks Consensus Estimate of $351.30 million.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed on the other. It delivered a surprise of 7.57%, on average, for the said period. The graph below depicts this surprise history:
Let’s see how things are shaping up prior to this announcement.
Rebounding from the steep sell-off in March, which resulted in mREITs witnessing a drastic decline in share prices and book values, the mortgage market stabilized during the second quarter. This was supported by the Federal Reserve’s continuous purchase of Agency mortgage-backed securities, a decline in benchmark interest rates to near zero and an improvement in the housing data.
Also, given that the mortgage rate recorded several new lows during the quarter, refinancing and origination activities have gone up. Specifically, the 30-year mortgage rates declined from 3.33% at the week ended Apr 2, 2020, to 3.07% at the week ended Jul 2, 2020.
Specifically, the decline in mortgage rates is expected to have driven higher mortgage prepayments. This suggests an increase in premium amortization expenses and high levels of conditional prepayment rate (CPR) for the June-end quarter for AGNC Investment’s agency portfolio, which consists primarily of fixed-rate MBS.
Further, the derivative instruments used by the company for hedging purposes are expected to report a loss for second-quarter 2020. The company had $46.5 billion in pay-fixed swaps as of Mar 31, 2020. With the decrease in floating rates (like LIBOR) and short-term rates during the second quarter, AGNC Investment is expected to report a negative net spread trend for second-quarter 2020. This is anticipated to have flared up the company’s net periodic interest expenses for the to-be-reported quarter. Moreover, its interest rate payer swaptions are expected to have witnessed a decline in valuations.
Nonetheless, the increase in interest expenses are expected to have been offset by a decrease in borrowing costs. Specifically, AGNC Investment uses short-term repurchase agreements or repos to increase leverage. Borrowing costs on repos are closely related to the Fed’s target rate, which is hovering close to zero. Hence, the company is expected to have witnessed lower borrowing costs.
With low repo rates, we anticipate AGNC Investment to have continued its specified pool MBS strategy. Accordingly, the company is expected to have shifted its focus from to-be-announced MBS investments to additional specified pool holdings that have better prepayment characteristics.
Moreover, we expect significant spread tightening across many residential mortgage assets to have supported a recovery in the mREIT’s book value for the June-end quarter. In fact, AGNC Investment’s estimated tangible net book value as of Apr 30 and May 31, 2020, improved from the March-end figure to $15.22 and $14.86 per common share, respectively.
Also, the company’s activities during 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 unchanged at 46 cents over the past month, indicating a decline of 6.1% from the year-ago reported figure.
Further, for the June-end quarter, NII estimate is pinned at $330.9 million, indicating year-over-year growth of 169%.
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. 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.
Earnings ESP: AGNC Investment’s Earnings ESP is 0.00%.
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 beat this quarter:
STAG Industrial Inc. (STAG - Free Report) , set to report quarterly numbers on Jul 28, currently has an Earnings ESP of +1.80% and a Zacks Rank of 3.
Iron Mountain Incorporated (IRM - Free Report) , slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.
SBA Communications Corporation (SBAC - Free Report) , set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +4.48% and a Zacks Rank of 3.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
What's in the Offing for AGNC Investment (AGNC) Q2 Earnings?
AGNC Investment Corp. (AGNC - Free Report) is scheduled to report second-quarter 2020 results on Jul 27, after the closing bell. The company’s net spread and dollar roll income per common share is expected to have declined year over year, while net interest income (NII) is expected to have improved.
In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (mREIT), which primarily focuses on leveraged investments in agency mortgage backed securities (MBS), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 57 cents per share, beating the Zacks Consensus Estimate of 56 cents. However, NII of $65 million lagged the Zacks Consensus Estimate of $351.30 million.
Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed on the other. It delivered a surprise of 7.57%, on average, for the said period. The graph below depicts this surprise history:
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.
Rebounding from the steep sell-off in March, which resulted in mREITs witnessing a drastic decline in share prices and book values, the mortgage market stabilized during the second quarter. This was supported by the Federal Reserve’s continuous purchase of Agency mortgage-backed securities, a decline in benchmark interest rates to near zero and an improvement in the housing data.
Also, given that the mortgage rate recorded several new lows during the quarter, refinancing and origination activities have gone up. Specifically, the 30-year mortgage rates declined from 3.33% at the week ended Apr 2, 2020, to 3.07% at the week ended Jul 2, 2020.
Specifically, the decline in mortgage rates is expected to have driven higher mortgage prepayments. This suggests an increase in premium amortization expenses and high levels of conditional prepayment rate (CPR) for the June-end quarter for AGNC Investment’s agency portfolio, which consists primarily of fixed-rate MBS.
Further, the derivative instruments used by the company for hedging purposes are expected to report a loss for second-quarter 2020. The company had $46.5 billion in pay-fixed swaps as of Mar 31, 2020. With the decrease in floating rates (like LIBOR) and short-term rates during the second quarter, AGNC Investment is expected to report a negative net spread trend for second-quarter 2020. This is anticipated to have flared up the company’s net periodic interest expenses for the to-be-reported quarter. Moreover, its interest rate payer swaptions are expected to have witnessed a decline in valuations.
Nonetheless, the increase in interest expenses are expected to have been offset by a decrease in borrowing costs. Specifically, AGNC Investment uses short-term repurchase agreements or repos to increase leverage. Borrowing costs on repos are closely related to the Fed’s target rate, which is hovering close to zero. Hence, the company is expected to have witnessed lower borrowing costs.
With low repo rates, we anticipate AGNC Investment to have continued its specified pool MBS strategy. Accordingly, the company is expected to have shifted its focus from to-be-announced MBS investments to additional specified pool holdings that have better prepayment characteristics.
Moreover, we expect significant spread tightening across many residential mortgage assets to have supported a recovery in the mREIT’s book value for the June-end quarter. In fact, AGNC Investment’s estimated tangible net book value as of Apr 30 and May 31, 2020, improved from the March-end figure to $15.22 and $14.86 per common share, respectively.
Also, the company’s activities during 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 unchanged at 46 cents over the past month, indicating a decline of 6.1% from the year-ago reported figure.
Further, for the June-end quarter, NII estimate is pinned at $330.9 million, indicating year-over-year growth of 169%.
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. 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.
Earnings ESP: AGNC Investment’s Earnings ESP is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 beat this quarter:
STAG Industrial Inc. (STAG - Free Report) , set to report quarterly numbers on Jul 28, currently has an Earnings ESP of +1.80% and a Zacks Rank of 3.
Iron Mountain Incorporated (IRM - Free Report) , slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.
SBA Communications Corporation (SBAC - Free Report) , set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +4.48% and a Zacks Rank of 3.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>