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Key Factors to Impact AGNC Investment (AGNC) Q1 Earnings

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AGNC Investment Corp. (AGNC - Free Report) is scheduled to report first-quarter 2021 results on Apr 26, 2021, after the closing bell. The company’s net spread and dollar roll income per common share for the quarter are expected to have increased year over year. Adjusted net interest and dollar roll income are 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 75 cents per share, beating the Zacks Consensus Estimate of 64 cents. However, net interest income (NII) of $183 million declined from the prior quarter’s $302 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 21.8%, 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.

In the first quarter, dual benefits of low funding costs and continued Fed purchases enhanced the attractiveness of Agency MBS investment, thereby, driving valuations.

This said, with $65.1 billion of Agency MBS in its investment portfolio (as of Dec 31, 2020), AGNC Investment is expected to have enjoyed attractive risk-adjusted returns within the fixed income markets and benefits from spread tightening in the first quarter. Also, the strong tailwinds for agency MBS are expected to have aided the company to increase its investment in agency MBS.

Moreover, high origination volume and Fed purchases continue to shape an ideal backdrop for roll specialness, and this is anticipated to have driven the company’s first-quarter earnings.

In the quarter, AGNC Investment saw an improvement in estimated tangible net book value from $16.71 as of the fourth-quarter end to $17.42 as of Jan 31 and $17.51 as of Feb 28.

While mortgage rates increased sequentially in the first quarter, it remained lower than the year-ago number, making mortgage refinancing attractive. Amid this, 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 27.6% for fourth-quarter 2020, up from 24.3% witnessed in third-quarter 2020.

This is anticipated to have led to higher net premium amortization in the March-end quarter, leading to a sequential decline in interest income and average asset yield. Lower prevailing yields on new asset purchases are also expected to have hindered asset yield improvement.

Also, given the steepening of the yield curve, funding costs are expected to have modestly increased. Moderation in funding cost benefit and lower asset yield are anticipated to have hindered net interest margin for first-quarter 2021.

For the March-end quarter, adjusted net interest and dollar roll income estimate is pegged at $412 million, which indicates year-over-year growth of 15.4%.

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.

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 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 first quarter:

Digital Realty Trust, Inc. (DLR - Free Report) , scheduled to report quarterly numbers on Apr 29, currently has an Earnings ESP of +1.06% and a Zacks Rank of 3.

CubeSmart (CUBE - Free Report) , slated to release quarterly numbers on Apr 29, has an Earnings ESP of +3.14% and a Zacks Rank of 3 at present.

Welltower, Inc. (WELL - Free Report) , slated to release quarterly earnings on Apr 28, currently has an Earnings ESP of +1.53% and a Zacks Rank of 3.

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