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Annaly Capital's (NLY) Q2 Earnings in Line, NII Goes Up

Annaly Capital Management, Inc. NLY – a mortgage real estate investment trust (mREIT) – reported second-quarter 2017 adjusted core earnings of 30 cents per share, in line with the Zacks Consensus Estimate. Earnings, however, compared favorably with the prior-year quarter figure of 29 cents.

Results highlight an increase in the to-be-announced dollar roll income.

Net interest income (NII) in the quarter totaled $315.1 million, reflecting year-over-year growth of 3.5%.

Annaly Capital Management Inc Price, Consensus and EPS Surprise

Quarter in Detail

In the reported quarter, average yield on interest-earning assets was 2.58%, while average cost of interest-bearing liabilities (including interest expense on interest rate swaps) was 1.74%.

This led to a net interest rate spread of 0.84% for the quarter, reflecting year-over-year expansion of 4 basis points (bps). Net interest margin came in at 1.23% compared with 1.15% recorded in the year-ago period.

The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) was $73.9 billion as of Jun 30, 2017, up from $64.9 billion as of Jun 30, 2016.

Annaly’s book value per share came in at $11.19 as of Jun 30, 2017, compared with $11.23 as of Mar 31, 2017. At the end of the second quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.2%, flat year over year.

Leverage was 5.6:1 as of Jun 30, 2017, compared with 5.3:1 as of Jun 30, 2016. The company offered an annualized core return on average equity of 10.54% in the quarter, up from 9.73% in the year-ago quarter.

Our Take

Annaly’s acquisition of Winston Salem, NC-based mREIT, Hatteras Financial Corp., has fortified its position in the mREIT space. Going forward, we believe Annaly’s prudent selection of assets, exposure to high-quality MBS, expansion of commercial real estate investments and solid financial position will keep its growth trend alive.

However, the company’s exposure to fluctuations in the mortgage backed securities and broader financial markets makes its volatile. Moreover, competition with several players and adverse macroeconomic conditions remain a concern. A rise in interest rate may further add to its woes.

Currently, Annaly carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has climbed 22.1% year to date, outperforming 11.7% growth recorded by the industry it belongs to.

Q2 Earnings Schedule of Other REITs

We now look forward to the earnings releases of other REIT’s like Western Asset Mortgage Capital Corporation WMC, Cherry Hill Mortgage Investment Corporation CHMI and NorthStar Asset Management Group, Inc. CLNS.  All of these companies are scheduled to announce quarterly results on Aug 8.

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