Annaly Capital (NLY) Q4 Earnings Beat Estimates, NII Grows

Annaly Capital Management, Inc. (NYSE:NLY) reported fourth-quarter 2017 adjusted core earnings of 31 cents per share, beating the Zacks Consensus Estimate by a penny. Also, earnings compared favorably with the prior-quarter figure of 30 cents.

Results highlight an increase in net interest income (NII) in the fourth quarter, which totaled $426.7 million, representing sequential growth of 20.7%.

Quarter in Detail

In the reported quarter, average yield on interest-earning assets, excluding premium amortization adjustment (PAA) was 3.02%, up from 2.97% reported in the previous quarter.

Net interest rate spread (excluding PAA) of 1.19% for the fourth quarter inched up from 1.15% reported in the prior quarter. Net interest margin (excluding PAA) came in at 1.51% compared with 1.47% recorded in the prior quarter.

The company’s investment at fair value of Agency mortgage-backed securities was $90.6 billion as of Dec 31, 2017, up from $85.9 billion as of Sep 30, 2017.

Annaly’s book value per share came in at $11.34 as of Dec 31, 2017, compared with $11.42 as of Sep 30, 2017. At the end of the fourth quarter, the company’s capital ratio was 12.9%, up from 12.3% at the end of the previous quarter.

Leverage was 5:7:1 as of Dec 31, 2017, compared with 5:4:1 as of Sep 30, 2017. The company offered an annualized core return on average equity of 10.67% in the reported quarter, up from 10.57% in the prior quarter.

Our Take

We are impressed by Annaly’s better-than-expected results. The company’s prudent selection of assets, diversified investment and financing options, as well as exposure to high-quality mortgage-backed securities (MBSs) are anticipated to support bottom-line growth.

Over the past six months, the company raised $2.8 billion in the common and preferred equity markets, and made efforts to diversify its portfolio. The company also lowered its leverage to boost liquidity and enhanced hedging activity. However, the company faces stiff competition from other financial institutions. Further, adverse macro-economic conditions and any rise in rate of interest might 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.

However, the stock has depreciated 15.9% in the past six months, underperforming the 12.7% loss incurred by the industry it belongs to.

We are now looking forward to the earnings releases of Public Storage (NYSE:PSA) , Host Hotels & Resorts, Inc. (NYSE:HST) and Welltower Inc. (NYSE:HCN) all of which are expected to report quarterly figures in the next week.

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