Annaly (NLY) Down 35.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Annaly Capital Management (NLY). Shares have lost about 35.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Annaly due for a breakout? 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 catalysts.

Annaly's Q4 Earnings Beat Estimates on Improving NII

Annaly reported fourth-quarter 2019 core earnings, excluding premium amortization adjustment (PAA), of 26 cents per share, beating the Zacks Consensus Estimate of 24 cents and the prior quarter’s 21 cents. However, the figure compares unfavorably with the year-ago tally of 29 cents.

NII came in at $454.2 million, marking a surge from the prior quarter’s $152.4 million as well as the year-ago period’s $272.9 million.

Notably, the company’s capital allocation to credit increased to 26% from 23%, driven by $1.8 billion in new credit assets.

For full-year 2019, core earnings, excluding PAA, per share came in at $1.00 compared with the $1.20 reported in the prior year.

Moreover, following the end of the 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.

Quarter in Detail

During the fourth quarter, Annaly Residential Credit Group accomplished a $465.5-million residential whole loan securitization as well as purchased $957 million of residential whole loans. Further, $596 million in new investments were closed by Annaly Commercial Real Estate Group, leading the tally of total assets to $2.3 billion, denoting a rise of 31% from the prior quarter. Moreover, Annaly Middle Market Lending Group closed $238.7 million of loans in the quarter.

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 3.25%, slightly down from the prior quarter’s 3.26%.

However, net interest spread (excluding PAA) of 1.24% for the fourth quarter increased from the 0.98% reported in the prior quarter. Net interest margin (excluding PAA) in the quarter came in at 1.41% compared with the 1.10% witnessed in third-quarter 2019.

Also, Annaly’s book value per share came in at $9.66 as of Dec 31, 2019, up from $9.21 as of the prior-quarter end. Additionally, book value per share compared favorably with $9.39 as of Dec 31, 2018. At the end of the December-end quarter, the company’s capital ratio was 12%, up from the 11.2% reported at the end of third-quarter 2019.

Leverage was 7.1:1 as of Dec 31, 2019, compared with 7.3:1 as of Sep 30, 2019. The company offered an annualized core return on an average equity (excluding PAA) of 10.56% in the October-December period, up from the prior quarter’s 8.85%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

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

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Annaly has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.