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What's in Store for AGNC Investment (AGNC) in Q4 Earnings?

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AGNC Investment Corp. (AGNC - Free Report) is scheduled to report fourth-quarter and 2020 results on Jan 25, 2021, after the closing bell. The company’s net spread and dollar roll income per common share for the quarter and the year is expected to have increased year over year. Quarterly net interest income (NII) is also expected to have improved.

In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (mREIT), posted net spread and dollar roll income (excluding estimated catch-up premium amortization costs) of 81 cents per share, beating the Zacks Consensus Estimate of 57 cents. Moreover, NII of $302 million grew from the prior-year quarter’s $119 million. AGNC Investment primarily focuses on leveraged investments in agency mortgage backed securities (MBS).

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions. It has an earnings surprise of 19.4%, on average, for the said 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 have shaped up prior to this announcement.

Incremental purchases of Agency RMBS by the Federal Reserve and stable interest rates for the fourth quarter have strengthened the Agency mortgage market in the quarter and are expected to have driven Agency MBS valuations.

Amid this, AGNC Investment is anticipated to have increased its agency MBS portfolio. However, an increase in agency MBS balance and anticipated lower asset yield is likely to have hindered net interest margin for the fourth quarter.

Markedly, during fourth-quarter 2020, mortgage rates continued the decreasing trend, making mortgage refinancing more attractive. As such, a significant portion of AGNC Investment’s MBS holdings is anticipated to have continued witnessing elevated levels of constant prepayment rate (“CPR”). Notably, the company’s investment portfolio had a CPR of 24.3% in the third quarter, up from 19.9% witnessed in second-quarter 2020.

This is likely to have led to higher net premium amortization in the December-end quarter, leading to a sequential decline in interest income and average asset yield.

The FOMC’s decision toreduce the Fed funds rate to near zero percentage in March 2020 and maintain the same low level throughout the year have resulted in the reduction of the quarterly average cost of funds rate in relation to AGNC’s outstanding repurchase agreements. This is projected to reduce interest expenses for the company in the fourth quarter, thereby, driving NII. In fact, for the December-end quarter, the NII estimate is pegged at $384 million that indicates year-over-year growth of 33.8%.

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 is unchanged at 64 cents in the past month. Nonetheless, it indicates a rise of 12.3% from the year-ago reported figure.

Further, the Zacks Consensus Estimate for 2020 net spread and dollar roll income per common share is pinned at $2.60 and it indicates an improvement of 20.4% from the year-ago reported figure.

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 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are some 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 surprise for the fourth quarter:

Boston Properties, Inc. (BXP - Free Report) , set to report quarterly numbers on Jan 26, currently has an Earnings ESP of +0.16% and a Zacks Rank of 3.

Highwoods Properties, Inc. (HIW - Free Report) , slated to release quarterly earnings on Feb 9, has an Earnings ESP of +0.24% and a Zacks Rank of 3 at present.

SL Green Realty Corp. (SLG - Free Report) , slated to release quarterly earnings on Jan 27, has an Earnings ESP of +3.92% and a Zacks Rank of 3 at present.

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