Why Is Annaly (NLY) Up 1.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Annaly Capital Management (NLY). Shares have added about 1.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Annaly Earnings Meet Estimates in Q1, NII Declines

Annaly reported first-quarter 2020 core earnings, excluding premium amortization adjustment (PAA), of 21 cents per share, meeting the Zacks Consensus Estimate. However, the figure compared unfavorably with the year-ago quarter’s 29 cents.

NII was $51.6 million, marking a steep decline from the prior quarter’s $454.2 million as well as the year-ago period’s $218.5 million.

Moreover, in the first quarter, definitive agreements were signed, per which Annaly will acquire its external manager, Annaly Management Company LLC, and change to being an internally-managed REIT. The transaction is expected to close in second-quarter 2020.

Quarter in Detail

The company ended the quarter with a $99.3-billion investment portfolio. Of this, 93% account for investments in Agency MBS. Moreover, at first-quarter 2020 end, unencumbered assets stood at $6.9 billion.

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 2.91%, down from the prior quarter’s 3.25%.

However, net interest spread (excluding PAA) of 1% for the first quarter declined from 1.24% reported in the prior quarter. Net interest margin (excluding PAA) in the quarter was 1.18% compared with 1.41% witnessed in fourth-quarter 2019.

Also, Annaly’s book value per share was $7.50 as of Mar 31, 2020, down from $9.66 as of the prior quarter end. Additionally, book value per share compared unfavorably with $9.97 as of Mar 31, 2019. At the end of the March-end quarter, the company’s capital ratio was 12.3%, up from 12% reported at the end of fourth-quarter 2019.

Economic leverage was 6.8:1 as of Mar 31, 2020, compared with 7.2:1 as of Dec 31, 2019. The company offered an annualized core return on average equity (excluding PAA) of 9.27% in the January-March period, down from the prior quarter’s 10.56%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -21.8% due to these changes.

VGM Scores

Currently, Annaly has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Annaly has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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