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What's in Store for AGNC Investment's (AGNC) Q3 Earnings?

Zacks Equity Research

AGNC Investment Corp. AGNC is scheduled to report third-quarter 2019 results on Oct 30, after the market closes. The company’s results will likely reflect year-over-year decline in its net spread and dollar roll income per common share.

In the last reported quarter, this Bethesda, MD-based mortgage real estate investment trust (REIT), which primarily focuses on leveraged investments in agency mortgage backed securities (MBS), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 49 cents per share, missing the Zacks Consensus Estimate of 50 cents. Further, net interest income (NII) of $123 million came in lower than second-quarter 2018 reported figure of $177 million.

Over the trailing four quarters, the company met the Zacks Consensus Estimate on one occasion and missed in three others. It delivered an average negative surprise of 5.6% during this period. The graph below depicts this surprise history:

AGNC Investment Corp. Price and EPS Surprise
 

AGNC Investment Corp. Price and EPS Surprise


AGNC Investment Corp. price-eps-surprise | AGNC Investment Corp. Quote

Let’s see how things are shaping up prior to this announcement.

While U.S. Treasury rates continued to fall across maturities in the third quarter, different parts of the yield curve inverted during this period. At the end of the quarter, the three-month rate stood at 1.88%, down from 2.12% reported at the second-quarter end, while the 30-year rate ended at 2.12% as compared to 2.52% recorded at the end of June.

Further, substantial decline in 10-year yield is expected to have resulted in lower mortgage rates. Specifically, the 30-year mortgage rates declined from 3.75% in the week ended Jul 3, 2019 to 3.64% in the week ended Sep 26, 2019.

Supported by the above-mentioned factors, the U.S. housing market will likely have picked up pace during the quarter. With this, mortgage REITs are expected to have witnessed expansion of production pipelines driven by strong origination activities. Given the consistently low-mortgage rates, refinancing activities have gone up in the third quarter, along with rise in originations.

However, substantial volatility in the agency market is expected to have affected AGNC Investment’s quarterly performance. In addition, a challenging environment, including higher-than-expected funding costs compared with LIBOR, higher premium amortization and low dollar roll specialness had adversely impacted the company’s performance in the second quarter. Given the market volatility, this is expected to have continued in the third quarter as well.

Also, any underperformance of the company’s agency MBS portfolio is expected to have brought a decline in tangible net book value per share.

Lastly, prior to the third-quarter earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share for the quarter has been revised marginally downward to 48 cents, over the past week. It also suggests a year-over-year decline of 21.3%.

Earnings Whispers

Our proven model does not conclusively show that AGNC Investment is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

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

Earning ESP: AGNC Investment’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Digital Realty Trust, Inc. DLR, scheduled to release earnings on Oct 29, has an Earnings ESP of +2.61% and carries a Zacks Rank of 3, at present.

Senior Housing Properties Trust SNH, slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Stag Industrial, Inc. STAG, set to release quarterly figures on Oct 30, has an Earnings ESP of +1.1% and carries a Zacks Rank of 3, at present.

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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
 
Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report
 
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Senior Housing Properties Trust (SNH) : Free Stock Analysis Report
 
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