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Why Is Annaly (NLY) Up 0.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Annaly Capital Management (NLY - Free Report) . Shares have added about 0.4% in that time frame, underperforming the S&P 500.

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

Annaly Q2 Earnings Beat Estimates, NII & Book Value Dip

Annaly reported second-quarter 2021 earnings available for distribution (EAD), formerly known as core earnings per share excluding premium amortization adjustment (“PAA”), of 30 cents that surpassed the Zacks Consensus Estimate of 27 cents. The figure compared favorably with the year-ago quarter’s 27 cents.

Net interest income (NII) was $322.9 million, lagging the Zacks Consensus Estimate of $412.3 million. The figure declined 19% year over year.

While continued record-low financing costs and higher average yield on interest-earning assets supported Annaly, the company registered a sequential decline in BVPS.

Annaly is on track to sell its commercial real estate business to Slate Asset Management for $2.33 billion. This will reduce exposure to the commercial real estate sector and provide the capacity to increase investments in the residential mortgage finance market. Subsequent to the second-quarter end, the company transferred the platform and the majority of assets, while the remaining are anticipated to be transferred by the end of third-quarter 2021.

Inside the Headlines

As of the second-quarter end, the company had $92.9 billion of total assets. At the end of second-quarter 2021, unencumbered assets stood at $9.6 billion.

Annaly sequentially increased its capital allocation to the residential credit business from 13% to 19% in the second quarter, backed by $1 billion of whole-loan purchases.

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 2.76%, up from the prior quarter’s 2.71%. Average GAAP cost of interest-bearing liabilities was 0.32%, sequentially declining from 0.42%.

Net interest spread (excluding PAA) of 1.93% for the second quarter rose from 1.84% in the prior quarter. Net interest margin (excluding PAA) in the reported quarter was 2.09% compared with 1.91% witnessed in first-quarter 2021.

Annaly’s BVPS was $8.37 as of Jun 30, 2021, sequentially down from $8.95. Also, BVPS compared unfavorably with $8.39 as of Jun 30, 2020. At the end of the reported quarter, the company’s economic capital ratio was 14.3%, rising from 13.7% in the prior quarter.

For the June-end quarter, weighted average actual constant prepayment rate was 26.4%, sequentially up from 23.9%.

Economic leverage was 5.8X as of Jun 30, 2021, down from 6.1X in the previous quarter. The company generated an annualized EAD return on average equity (excluding PAA) of 13.05 % in the second quarter, up from the prior quarter’s 12.53%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Annaly has an average Growth Score of C, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Annaly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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