Annaly Capital Management, Inc. (NLY - Free Report) is a promising investment at present, backed by prudent steps taken in the early market-recovery phase that has positioned the company’s investment portfolio well to capitalize on the opportunities and deliver compelling returns. Further, earnings growth prospects and industry tailwinds make it an attractive pick.
The company reported second-quarter 2020 core earnings, excluding premium amortization adjustment (PAA), of 27 cents per share that outpaced the Zacks Consensus Estimate of 23 cents. Moreover, net interest income (NII) was $398.8 million, surpassing the Zacks Consensus Estimate of $205 million.
It has a trailing four-quarter earnings surprise of 2.4%, on average.
Shares of this Zacks Rank #2 (Buy) company have gained 17.8% over the past three months compared with the industry’s rally of 14.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, Annaly has a number of other aspects that make it a solid investment choice.
Active portfolio repositioning moves: The company’s investment strategy is driven by a prudent selection of assets and effective allocation of capital to achieve better returns. In the second quarter, the company took advantage of the outperformance of specified pools and sold its higher-coupon securities. Simultaneously, it continued investment portfolio shift to low-coupon securities that have compelling financing characteristics. Given the near-term tailwind of specialness, Annaly increased its to-be-announced investments. Such portfolio shuffling effort will help the company to benefit from the recovery in the mortgage market.
Low funding costs to drive margins: The company gains from its scale and diversification, and operates at a substantially lower expense level. In fact, a decline in LIBOR rates and repo costs are reducing the company’s average cost of borrowing and interest expenses. This is expected to drive net interest margin in the upcoming quarters. In fact, with the Fed and other central banks advocating a low interest rate environment, Annaly is well-positioned to further capitalize on operating in a lower cost market environment.
Share repurchases to provide book value accretion: The company has been active on the share buyback front with $175 million of repurchases since the start of the current year through Jul 29. This indicates its commitment to increase shareholder value through share buybacks. It also provides immediate book value accretion and additional flexibility within the company’s capital-allocation framework.
Favorable ROE: Also, its return on equity is 12.2% compared with the industry’s average of 8.6%. This reflects that the company reinvests its funds more efficiently.
Estimate revision trend and positive NII growth estimate: The company is witnessing positive estimate revisions for 2020 and 2021. Over the past 30 days, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised upward by 13.6% and 5.3% to $1 and 99 cents, respectively.
Moreover, 2020 NII is pinned at $1.14 billion, indicating a 13.5% year-over-year increase.
Other Stocks to Consider
AGNC Investment Corp.’s (AGNC - Free Report) Zacks Consensus Estimate for 2020 earnings has been revised 5.7% upward to $2.22 over the past month. The company currently carries a Zacks Rank of 2.
Dynex Capital, Inc.’s (DX - Free Report) earnings estimates for the ongoing year have been revised 30% upward to $1.69 over the past month. The company currently carries a Zacks Rank of 2.
Capstead Mortgage Corporation’s (CMO - Free Report) earnings estimates for 2020 have been revised 11.5% upward to 68 cents over the past month. It currently carries a Zacks Rank of 2.
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