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Annaly (NLY) to Post Q2 Earnings: What's in the Offing?

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Annaly Capital Management Inc. NLY is scheduled to report second-quarter 2021 results on Jul 28, after market close. While the company’s results are expected to reflect year-over-year growth in net interest income (NII), earnings are anticipated to have been flat.

In the last reported quarter, the mortgage real estate investment trust (mREIT) posted core earnings (excluding premium amortization adjustment) of 29 cents per share, surpassing the Zacks Consensus Estimate of 26 cents. While continued record-low financing costs supported Annaly, a fall in average yield on interest-earning assets was spoilsport. Nonetheless, the company registered a sequential improvement in book value per share.

Over the last four quarters, the company’s earnings beat the Zacks Consensus Estimate on three occasions and matched the mark in the other quarter. The average surprise was 13%. The graph below depicts this surprise history:

Annaly Capital Management Inc Price and EPS Surprise

Annaly Capital Management Inc Price and EPS Surprise
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 second-quarter earnings announcement.

Continued government stimulus and an increase in vaccination pace steered the economy toward recovery in the second quarter. This along with a strong housing market supported growth in the mortgage market. Also, the Federal Reserve continued to purchase Treasury securities and agency MBS in the second quarter. This is expected to have lifted valuations of Agency mortgage-backed securities (MBSs) held by Annaly.

Hence, Annaly’s investment strategy, driven by a prudent selection of assets and an effective capital allocation to Agency MBSs and credit-focused asset classes, is likely to have enhanced its returns in the second quarter.

The company is expected to have capitalized on the operation in the current lower-cost market, given its strong relationships with best-in-class sponsors and operating partners. With this, Annaly is expected to have witnessed low financing costs, thereby, alleviating pressure off NII.

The consensus estimate for second-quarter NII of $412.4 million indicates 3.4% growth from the year-ago quarter’s reported figure.

However, near-zero interest rates and the flattening of the yield curve are likely to have hindered net interest margins. The consensus estimate for the same is pegged at 2%, indicating a decline from 1.89% reported in second-quarter 2020.

Yields across all asset classes are expected to have declined in the second quarter. Given Annaly’s significant Agency MBS balance, declining asset yields are likely to have dented its second-quarter performance. This, in turn, is expected to have induced net interest margin contractions.

In second-quarter 2021, mortgage rates declined sequentially, resulting in continued higher mortgage refinancing levels. A significant portion of Annaly’s MBS holdings is anticipated to have continued witnessing elevated levels of constant prepayment rate. This is likely to have adversely impacted the company’s NII and asset yield.

Spread widening in the quarter is anticipated to have affected book value growth.

Lastly, the company’s activities in the June-end quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for second-quarter earnings has been unchanged at 27 cents a month.

Earnings Whispers

Annaly does not have the right combination of the two key ingredients — a positive Earnings ESP and a 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 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. DRE, 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, 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, slated to announce second-quarter results on Aug 3, currently has an Earnings ESP of +0.34% and a Zacks Rank of 3.


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Public Storage (PSA) : Free Stock Analysis Report

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Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report

Annaly Capital Management Inc (NLY) : Free Stock Analysis Report

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