Back to top

Image: Bigstock

Annaly (NLY) to Report Q4 Earnings: Key Factors to Note

Read MoreHide Full Article

Annaly Capital Management Inc. (NLY - Free Report) is scheduled to report fourth-quarter and 2021 results on Feb 9, after market close. The company’s results are expected to reflect declines in net interest income (NII) and earnings from the year-ago reported figures.

In the last reported quarter, the mortgage real estate investment trust (mREIT) posted earnings available for distribution (EAD) per share of 28 cents, surpassing the Zacks Consensus Estimate of 26 cents. While continued record-low financing costs supported the results, the company registered a year-over-year decline in book value per share and the average yield on interest-earning assets.

Over the last four quarters, Annaly’s earnings beat the Zacks Consensus Estimate on three occasions and met the mark in the other quarter, the average surprise being 7.6%. The graph below depicts this surprise history:

Annaly Capital Management Inc Price and EPS Surprise

 

Annaly Capital Management Inc Price and EPS Surprise

Annaly Capital Management Inc price-eps-surprise | Annaly Capital Management Inc Quote

Let’s see how things have shaped up prior to the fourth-quarter earnings announcement.

In the fourth quarter, there was an uptick in interest rate volatility due to monetary policy uncertainty, and Fed’s decision to increase short-term rates and shift from quantitative easing to tightening. Against the backdrop, Agency mortgage-backed securities (MBS) lost ground and underperformed as spreads to benchmark rates widened and valuations slipped relative to interest rate hedges.

Also, after witnessing record-low liability costs, expenses are likely to have normalized in the fourth quarter. Incremental pressure on asset yields, owing to the uncertainty in the fixed income markets and higher cash balances, is expected to have induced net interest margin and NII contractions.

The consensus estimate for fourth-quarter NII of $357 million indicates a 17.5% decline from the year-ago reported figure.

The consensus estimate for net interest margin is pegged at 1.92%, indicating a decline from 2.14% reported in fourth-quarter 2020.

The mortgage spread widening in the quarter under review and asset write-downs are expected to have adversely impacted the book value.

Mortgage originations, both purchase and refinancing, continued to normalize in the fourth quarter. The origination boom in 2020, propelled by the ultra-low rates, is also making comparison difficult for the quarter. Further, mortgage rates rose in the quarter under review. This resulted in a drastic fall in mortgage origination activities, with steadily rising rates reducing refinancing levels.

Reduced levels of refinancing are anticipated to have alleviated pressure from Annaly’s MBS holdings, which have been witnessing elevated levels of prepayments over the past few quarters. This is expected to have reduced net premium amortization in the December-end quarter, offering scope for growth in interest income and average asset yield.

Moreover, given the uncertainty about the Fed’s tapering moves, the company is expected to have migrated part of its investment portfolio from Agency MBSs to credit-focused assets.

Hence, Annaly’s investment strategy, driven by a prudent selection of assets and an effective capital allocation to Agency MBSs and credit-focused asset classes, is likely to have enhanced its returns in the fourth quarter.

Lastly, the company’s activities in the December-end quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter earnings has been unchanged at 26 cents in a month. This indicates a year-over-year decline of 13.3%.

Earnings Whispers

Annaly has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat this time around.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Annaly has an Earnings ESP of +2.53%.

Zacks Rank: Annaly currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks Worth a Look

A few other REIT stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around, are Redwood Trust, Inc. (RWT - Free Report) , Alpine Income Property Trust, Inc. (PINE - Free Report) and Life Storage, Inc. .

Redwood Trust is slated to release fourth-quarter and 2021 earnings on Feb 9. RWT has an Earnings ESP of +5.88% and a Zacks Rank of 2 at present.

Alpine Incomeis slated to release earnings numbers on Feb 10. PINE has an Earnings ESP of +10.34% and a Zacks Rank of 2 at present.

Life Storage is set to report quarterly numbers on Feb 24. LSI has an Earnings ESP of +0.66% and a Zacks Rank of 3 at present.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Redwood Trust, Inc. (RWT) - free report >>

Annaly Capital Management Inc (NLY) - free report >>

Alpine Income Property Trust, Inc. (PINE) - free report >>

Published in