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Factors Setting the Stage for Annaly's (NLY) Q1 Earnings
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Annaly Capital Management Inc. (NLY - Free Report) is scheduled to report first-quarter 2022 results on Apr 27, after market close. The company’s results are expected to reflect declines in net interest income (NII) and earnings from the year-ago reported figures.
In the last reported quarter, the mortgage real estate investment trust (mREIT) posted earnings available for distribution (EAD) per share of 28 cents, which surpassed the Zacks Consensus Estimate of 26 cents. The figure, however, compared unfavorably with the year-ago quarter’s 30 cents.With continued low financing costs, Annaly witnessed a rise in net interest spread. However, the company registered a year-over-year decline in book value per share (BVPS) and the average yield on interest-earning assets.
Over the last four quarters, Annaly’s earnings beat the Zacks Consensus Estimate on all of the trailing four quarters, the average surprise being 9.5%. The graph below depicts this surprise history:
Annaly Capital Management Inc Price and EPS Surprise
Annaly’s investment portfolio repositioning over the past few quarters is expected to have continued in the first quarter, providing scope for incremental investment returns in the quarter. The company has been redeploying capital from credit real estate to its mortgage servicing rights (MSR) and residential credit businesses. It is likely to have continued to allocate additional capital to this strategy as spreads widen. Moreover, TBA dollar rolls investments are likely to have continued in the first quarter.
Hence, Annaly’s investment strategy, driven by a prudent selection of assets and an effective capital allocation to Agency MBS and credit-focused asset classes, is likely to have enhanced its returns in the first quarter.
Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. Mortgage originations volumes have been facing tough comps from the prior year, which have been propelled by low mortgage rates.
However, in the first quarter, mortgage rates increased. As of the first-quarter 2022 end, the average rate on the 30-year loan rose to 4.67%, in sharp contrast to last year’s record-low mortgage rates of around 3%.
Hence, mortgage origination activities are estimated to have decreased dramatically, with rising rates discouraging refinancing activity.
Reduced levels of refinancing are anticipated to have alleviated pressure from Annaly’s MBS holdings, which have been witnessing elevated levels of prepayments over the past few quarters. This is expected to have reduced net premium amortization in the first quarter, offering scope for growth in interest income and average asset yield.
However, owing to mortgage spread widening, book value is expected to have deteriorated for NLY in the first quarter.
Also, after witnessing record-low liability costs, expenses are likely to have normalized in the first quarter. Incremental pressure on asset yields, owing to the uncertainty in the fixed income markets and higher cash balances, is expected to have induced net interest margin and NII contractions.
The consensus estimate for first-quarter NII of $341 million indicates a 50.4% decline from the year-ago reported figure.
Lastly, the company’s activities in the first quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for first-quarter earnings has been unchanged at 24 cents in a month. This indicates a year-over-year decline of 17.2%.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat 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%.
A few REIT stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around, are Hannon Armstrong Sustainable Infrastructure Capital (HASI - Free Report) , Public Storage (PSA - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) .
Hannon Armstrongis slated to release first-quarter 2022 earnings on May 3. HASI has an Earnings ESP of +2.67% and a Zacks Rank of 2 (Buy) at present.
Public Storage, slated to release first-quarter earnings on May 3, has an Earnings ESP of +0.50% and a Zacks Rank of 2 at present.
Host Hotels & Resorts, scheduled to report quarterly figures on May 4, has an Earnings ESP of +4.07% and it currently sports a Zacks Rank of 1.
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Factors Setting the Stage for Annaly's (NLY) Q1 Earnings
Annaly Capital Management Inc. (NLY - Free Report) is scheduled to report first-quarter 2022 results on Apr 27, after market close. The company’s results are expected to reflect declines in net interest income (NII) and earnings from the year-ago reported figures.
In the last reported quarter, the mortgage real estate investment trust (mREIT) posted earnings available for distribution (EAD) per share of 28 cents, which surpassed the Zacks Consensus Estimate of 26 cents. The figure, however, compared unfavorably with the year-ago quarter’s 30 cents.With continued low financing costs, Annaly witnessed a rise in net interest spread. However, the company registered a year-over-year decline in book value per share (BVPS) and the average yield on interest-earning assets.
Over the last four quarters, Annaly’s earnings beat the Zacks Consensus Estimate on all of the trailing four quarters, the average surprise being 9.5%. The graph below depicts this surprise history:
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 first-quarter earnings announcement.
Annaly’s investment portfolio repositioning over the past few quarters is expected to have continued in the first quarter, providing scope for incremental investment returns in the quarter. The company has been redeploying capital from credit real estate to its mortgage servicing rights (MSR) and residential credit businesses. It is likely to have continued to allocate additional capital to this strategy as spreads widen. Moreover, TBA dollar rolls investments are likely to have continued in the first quarter.
Hence, Annaly’s investment strategy, driven by a prudent selection of assets and an effective capital allocation to Agency MBS and credit-focused asset classes, is likely to have enhanced its returns in the first quarter.
Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. Mortgage originations volumes have been facing tough comps from the prior year, which have been propelled by low mortgage rates.
However, in the first quarter, mortgage rates increased. As of the first-quarter 2022 end, the average rate on the 30-year loan rose to 4.67%, in sharp contrast to last year’s record-low mortgage rates of around 3%.
Hence, mortgage origination activities are estimated to have decreased dramatically, with rising rates discouraging refinancing activity.
Reduced levels of refinancing are anticipated to have alleviated pressure from Annaly’s MBS holdings, which have been witnessing elevated levels of prepayments over the past few quarters. This is expected to have reduced net premium amortization in the first quarter, offering scope for growth in interest income and average asset yield.
However, owing to mortgage spread widening, book value is expected to have deteriorated for NLY in the first quarter.
Also, after witnessing record-low liability costs, expenses are likely to have normalized in the first quarter. Incremental pressure on asset yields, owing to the uncertainty in the fixed income markets and higher cash balances, is expected to have induced net interest margin and NII contractions.
The consensus estimate for first-quarter NII of $341 million indicates a 50.4% decline from the year-ago reported figure.
Lastly, the company’s activities in the first quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for first-quarter earnings has been unchanged at 24 cents in a month. This indicates a year-over-year decline of 17.2%.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat 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 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks Worth a Look
A few REIT stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around, are Hannon Armstrong Sustainable Infrastructure Capital (HASI - Free Report) , Public Storage (PSA - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) .
Hannon Armstrongis slated to release first-quarter 2022 earnings on May 3. HASI has an Earnings ESP of +2.67% and a Zacks Rank of 2 (Buy) at present.
Public Storage, slated to release first-quarter earnings on May 3, has an Earnings ESP of +0.50% and a Zacks Rank of 2 at present.
Host Hotels & Resorts, scheduled to report quarterly figures on May 4, has an Earnings ESP of +4.07% and it currently sports a Zacks Rank of 1.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.