American Capital Agency Corp. (AGNC): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


We are upgrading our recommendation on American Capital Agency Corp. given the Federal Reserve's latest stance of keeping the interest rate level low for a "considerable time" even after the tapering of stimulus. This is because it offers a scope of reaping decent gains over the short term. The company s second-quarter net spread and dollar roll income (excluding "catch-up" premium amortization) significantly exceeded the Zacks Consensus Estimate. Results also compared favorably with the prior-quarter figure. The company's performance benefited from the strategic decisions implemented by the company, including maintenance of leverage level, operating with a larger duration gap and reduction in the size of its swaption portfolio. Moreover, it is witnessing a recovery in its book value. Going forward, we believe that the concerted measures to reposition its portfolio so as to meet the current interest rate environment augur well for this company's profitability.


American Capital Agency Corp. is a real estate investment trust (REIT) that focuses on investments in residential mortgage pass-through securities and collateralized mortgage obligations (CMOs), for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity. The company purchases single-family residential pass-through securities, which are interests in pooled loans of principal and interest including pre-paid principal, that are made to the holders of the notes.

Collateralized mortgage obligations consist of multiple classes with payments of principal and interest being made to note holders based on the maturity date of the class of security. The mortgages underlying these agency securities are fixed rate, adjustable rate or hybrid (fixed and adjustable) securities. Agency securities differ from traditional fixed-income investments as principal and interest are paid on a regular schedule and there is a possibility that the principal will be prepaid by mortgage holders if interest rates fall.

American Capital Agency borrows against its investment portfolio pursuant to a master repurchase agreement, which provides short-term financing, typically 30 90 days. The company expects to make a profit and pay dividend from net interest income, which is the difference between interest earned on investments and its cost of borrowing. American Capital Agency is externally managed and advised by American Capital AGNC Management, LLC, an affiliate of American Capital Ltd.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: AGNC

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