Shares of Annaly Capital Management NLY have been performing well. In the year so far, the stock has rallied 21.4%, while the industry has gained 7.6%.
This rally is anticipated to continue in the near term as well, as there are a number of favorable factors.
In third-quarter 2017, the company posted encouraging results with respect to adjusted core earnings per share. Annaly reported adjusted core earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 29 cents. Also, earnings compared favorably with the prior-year figure of 29 cents. Results highlighted an increase in the to-be-announced dollar roll income.
Key Driving Factors
Effective investment strategy: Annaly’s investment strategy involves acquisition of opportunistic assets and effective allocation of capital. The company focuses on traditional agency MBS investments as well as investments in more credit-focused asset classes. These efforts enable Annaly to enjoy a high-quality portfolio that consists primarily of AA+ or better MBS and short-term investments. With a strong portfolio, the company is set to achieve higher returns and ride on the growth curve in the future.
Diverse funding base: Annaly enjoys a diverse funding profile in the industry. The company’s main sources of financing are repurchase agreements and various forms of equity. Annaly enters into repurchase agreements primarily with national broker-dealers, commercial banks and other lenders which typically offer financing for agency MBS. Moreover, RCap — the company’s wholly owned subsidiary — also enters into repurchase contracts on its behalf. This helps Annaly enjoy flexibility in opportunistic enhancement of its portfolio.
Stable financial position: Annaly has a robust capital position. In fact, the company’s approximately $9.6 billion high-quality unencumbered assets provide adequate capital buffer. Also, a strong financial position has enabled the company to maintain a continued dividend payout for 17 consecutive quarters. Its lower debt-to-equity ratio as compared to the industry average also raises our confidence in the sustainability of this dividend payout.
Strong cash flow per share: The company generates cash flow per share of $2.02 as compared to the industry’s average of $1.93. This makes us optimistic about Annaly’s operating performance for the long term.
Superior return on equity (ROE): Annaly has an ROE of 11.59%, significantly higher than the industry’s average of 9.78%. This highlights optimal utilization of equity and boosts investors’ confidence in the stock.
Zacks Rank: The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Other top-ranked stocks in the real estate investment trust space include ARMOUR Residential REIT ARR, Ares Commercial Real Estate Corporation ACRE and Apollo Commercial Real Estate Finance ARI. All three carry a Zacks Rank of 2.
ARMOUR Residential’s estimates for 2017 remained unchanged at $2.69 over the past month. Its share price has increased 2.7% over the past six months.
Ares Commercial’s estimates for the current year have remained unchanged at $1.11 in a month’s time. Over the past six months, the company’s shares have gained 1.4%.
Apollo Commercial’s 2017 earnings estimates remained unchanged at $1.75 over the past month. The stock has been up 2.3% for the past six months.
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