AGNC Investment Corp. (AGNC Quick QuoteAGNC - Free Report) is scheduled to report second-quarter 2021 results on Jul 26, 2021, after the closing bell. The company’s results are expected to reflect a year-over-year decline in net interest income (NII). Yet, earnings are anticipated to have improved.

In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (mREIT) posted net spread and dollar roll income (excluding estimated catch-up premium amortization costs) of 76 cents per share, beating the Zacks Consensus Estimate of 64 cents. Net interest income (NII) of $528 million significantly surged from the prior-year quarter’s $65 million. AGNC Investment primarily focuses on leveraged investments in agency mortgage backed securities (MBS).

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions. It has an earnings surprise of 26.04%, on average, for the said period. The graph below depicts the surprise history:

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

In the second quarter, mortgage rates declined sequentially, making mortgage-refinancing attractive. Amid this, a significant portion of AGNC Investment’s MBS holdings is anticipated to have continued witnessing elevated levels of constant prepayment rate (“CPR”). Notably, the company’s investment portfolio had a weighted average actual CPR of 24.6%, down from 27.6% witnessed in fourth-quarter 2020.

This is anticipated to have led to higher net premium amortization in the June-end quarter, leading to a sequential decline in interest income and average asset yield. Lower prevailing yields on new asset purchases are also expected to have hindered overall asset yield growth.

Given the flattening of the yield curve and the near-zero interest rate environment, net interest margins are likely to have eroded in the second quarter, thereby, affecting NII growth. For the June-end quarter, NII is pegged at $337.9 million, which indicates a year-over-year fall of 9.2%.

Widening in Agency spreads in the quarter under review is expected to have affected AGNC Investment’s hedge positioning and book value.The company reported an estimated tangible net book value of $16.82 per common share as of May 31, 2021.This indicates a decline of 5% from $17.72 reported at the end of the first quarter.

Nonetheless, the near-zero interest rate environment have facilitated a reduction in funding costs. This is likely to have reduced interest expense pressure in the second quarter.

AGNC Investment’s higher-coupon specified-pool MBS is expected to have aided its performance, with the benefits of slower projected prepayments.

The company’s activities in the quarter were inadequate to gain analysts’ confidence. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share has been unchanged at 64 cents in the past month. Nonetheless, it indicates a rise of 10.3% from the year-ago reported figure.

Earnings Whispers

Our proven model shows that AGNC Investment is likely to beat estimates this quarter. This is because a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.

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

Earnings ESP: AGNC Investment’s Earnings ESP is +2.80%.

Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks worth considering from the REIT sector as our model shows that these have the right combination of elements to pull off a positive surprise this earnings season:

Duke Realty Corp. , slated to release second-quarter earnings on Jul 28, has an Earnings ESP of +0.47% and a Zacks Rank of 3 at present.

Digital Realty Trust, Inc. (DLR Quick QuoteDLR - Free Report) , scheduled to report quarterly numbers on Jul 29, currently has an Earnings ESP of +0.63% and a Zacks Rank of 3.

Public Storage (PSA Quick QuotePSA - Free Report) , slated to announce second-quarter results on Aug 3, currently has an Earnings ESP of +0.34% and a Zacks Rank of 3.