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Factors Setting the Stage for Annaly (NLY) in Q2 Earnings

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Annaly Capital Management Inc. (NLY - Free Report) is scheduled to report second-quarter 2023 results on Jul 26, after market close. The company’s results are expected to reflect declines in earnings and net interest income (NII) from the year-ago reported figures.

In the last reported quarter, the mortgage real estate investment trust (mREIT) posted earnings available for distribution per share of 81 cents, which surpassed the Zacks Consensus Estimate of 72 cents. Results were supported by improvements in the average yield on interest-earning assets and margin. However, the company registered a year-over-year decline in book value per share.

Annaly’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 9.7%. 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 second-quarter earnings announcement.

The mREIT sector was under pressure in the second quarter due to high volatility in the fixed-income markets and the widening of the spread between the 30-year Agency MBS and 10-year treasury rate. This is expected to have affected the tangible book values of the industry players.

As for NLY, the company does not seem to be immune from a challenging macro backdrop. Book value is expected to have deteriorated in the second quarter due to higher rates, mortgage spread widening and an expected decline in valuations on NLY’s Agency position.

Moreover, we anticipate the company to have recorded unrealized losses on investments due to spread widening in the second quarter.

In the second quarter, the Federal Reserve increased policy rates by another 25 basis points, with the rates reaching at a 15-year high of 5-5.25%. This is likely to have increased costs of interest-bearing liabilities for NLY in the second quarter.

In the to-be-reported quarter, mortgage rates continued to rise, with the rate on a 30-year fixed mortgage reaching 6.71% in June, up from the 6.32% reported in the prior quarter. Thus, mortgage originations and refinancing continued to decline in the quarter.

Lower levels of refinancing are anticipated to have reduced prepayment speed and alleviated pressure from Annaly’s MBS holdings. This is expected to have reduced net premium amortization in the second quarter, offering scope for growth in interest income and average asset yield.

The consensus estimate for second-quarter NII of $262 million indicates a 44.9% decline from the year-ago reported figure.

Lastly, the company’s activities in the second quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for second-quarter earnings has been unrevised at 66 cents in a month. This indicates a year-over-year decline of 45%.

Earnings Whispers

Our proven model does not show that an earnings beat is likely for NLY this time around. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 0.00%.

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.

Stocks Worth a Look

Two stocks from the broader REIT sector, which you may want to consider as our model shows that these have the right combination of elements to report a surprise this time around, are Acadia Realty Trust (AKR - Free Report) and Simon Property Group (SPG - Free Report) .

Acadia Realty is slated to report its quarterly numbers on Aug 1. AKR has an Earnings ESP of +2.11% and a Zacks Rank of 3 presently.

Simon Property is slated to report its quarterly numbers on Aug 2. SPG has an Earnings ESP of +1.42% and a Zacks Rank of 3 at present.

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

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Simon Property Group, Inc. (SPG) - free report >>

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