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Annaly Capital's (NLY) Q3 Earnings Beat Estimates, NII Dips

Annaly Capital Management, Inc. NLY reported third-quarter 2017 adjusted core earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 29 cents. Also, earnings 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 third quarter totaled $353.6 million, representing year-over-year decline of 0.8%.

Annaly Capital Management Inc Price, Consensus and EPS Surprise

Quarter in Detail

In the reported quarter, average yield on interest-earning assets excluding  premium amortization adjustment (PAA) was 2.97%, up 25 basis points (bps) year over year.

Net interest rate spread (excluding PAA) of 1.15% for the quarter remained unchanged year over year. Net interest margin (excluding PAA) came in at 1.47% compared with 1.42% recorded in the year-earlier period.

The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) was $85.8 billion as of Sep 30, 2017, up from $74 billion as of Sep 30, 2016.

Annaly’s book value per share came in at $11.42 as of Sep 30, 2017, compared with $11.19 as of Jun 30, 2017. At the end of the third quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 12.3%, down year over year.

Leverage was 5:4:1 as of Sep 30, 2017, compared with 5.3:1 as of Sep 30, 2016. The company offered an annualized core return on average equity of 10.57% in the reported quarter, up from 10.09% in the year-ago period.

Our Take

We are impressed by Annaly’s better-than-expected results. The company continued to pay the same dividend of 30 cents per share for the 16th consecutive quarter and maintained a decent return on equity. This boosts investor’s confidence in the stock.

Further, in the third quarter, the company completed the previously announced sale of Pingora Holdings L.P. It maintained ownership interests in mortgage servicing rights.

However, Annaly’s exposure to fluctuations in mortgage-backed securities and broader financial markets make it volatile. Moreover, competition from several players and adverse macroeconomic conditions remain concerns. 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 13.2% year to date, outperforming 7.9% growth recorded by the industry it belongs to.

We are now looking forward to the earnings releases of Lamar Advertising Company LAMR, EPR Properties EPR and Outfront Media Inc. OUT all of which are expected to report in the upcoming days.

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