AGNC Investment Corp. (AGNC - Free Report) is making diligent efforts to reposition its portfolio, in order to offset the risks related to interest rates and prepayment uncertainty. Further, the company’s efficient cost structure augurs well.
Specifically, this residential mortgage real estate investment trust (REIT) remains focused to increase investments in mortgage backed securities (MBS) and improve its hedge portfolio. The company adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio, as well as hedges amid varying interest rate and mortgage market environment.
Notably, during the April-June quarter, AGNC Investment increased its hedge portfolio to $68.4 billion, while overall hedge ratio was 99% of the funding liabilities. Also, during the same time period, it increased investment portfolio to $77 billion, with MBS portfolio increasing nearly $8 million.
Importantly, MBS spreads in the second quarter remained materially unchanged sequentially. In addition, amid favorable outlook for returns on Agency MBS, as well as the prevailing interest rate scenario, the company’s efforts to gradually increase its MBS investments are a strategic fit.
Also, its efforts to reduce duration gap will support AGNC Investment performance over the long run. Large scale of operations and portfolio diversification have enabled the company to enjoy a substantially low expense level. In fact, its operating expense as a percentage of stockholders’ equity is 0.80%
AGNC Investment also enjoys decent financial muscle. It has solid access to attractive funding across a broad spectrum of counterparties and financing conditions. This provides the company flexibility in the opportunistic enhancement of its portfolio. Additionally, at the end of the second quarter, it raised nearly $800 million in new capital. Following this, the company issued 43.7 million shares of common stock for total gross proceeds of $825.9 million in August.
Furthermore, the company’s low leverage, as compared to the industry, makes it a safe bet. It has a debt/equity ratio of 0.04, lower than the industry’s average of 1.68. As such, it enjoys high financial flexibility, which supports the company’s growth pursuits.
Its return on equity is 11.7% compared with the industry’s average of 9.8%. This reflects that the company reinvests more efficiently compared to the industry.
AGNC Investment also generates higher cash flow per share of $3.32 compared to the industry’s average of $1.86.
Shares of AGNC Investment have underperformed the industry it belongs to, in the past three months. During this period, shares of the company have edged down 0.3% as compared with the industry’s increase of 1.2%. Nonetheless, given the company’s progress on fundamentals, the stock presents an attractive buying opportunity for investors.
Lastly, the trend in estimate revisions indicates a solid outlook for this Zacks Rank #2 (Buy) stock. In fact, the Zacks Consensus Estimate for 2018 earnings per share witnessed upward revision by a cent in two months’ time. Given its progress on the fundamentals, the stock is likely to perform well in the quarters ahead.
AGNC Investment carries a Zacks Rank #2 (Buy), currently.
Hence, there are enough reasons to expect a solid upside for this REIT stock. Particularly, a strong Zacks Rank and impressive operating fundamental of AGNC Investment appear strong enough to drive the stock’s performance further in the near future.
Other Key Picks
Other top-ranked stocks in the same space include Redwood Trust, Inc. (RWT - Free Report) , Sutherland Asset Management Corp. and Starwood Property Trust, Inc. (STWD - Free Report) . While Redwood and Sutherland sport a Zacks Rank of 1 (Strong Buy), Starwood carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Redwood’s earnings per share estimates for the current year remained unchanged at $1.78 in the past month. The stock has rallied 4.7% over the past six months.
Sutherland’s earnings per share estimates for 2018 has been revised upward by a cent to $1.76 over the past month. Its shares have appreciated 15.3% in six months’ time.
Starwood Property’s Zacks Consensus Estimate for 2018 earnings per share moved north by a cent to $2.20 in a week’s time. Its shares have gained 3.9% in the past six months.
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