AGNC Investment (AGNC) to Post Q1 Earnings: What to Expect?

AGNC Investment Corp. AGNC is scheduled to report first-quarter 2019 results on Apr 24, after the market closes. The company’s results will likely reflect year-over-year growth 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 MBS (mortgage backed securities), posted net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 53 cents per share, missing the Zacks Consensus Estimate of 61 cents. Net interest income (NII) of $186 million declined on a sequential basis.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in two and met in the other. It delivered average negative surprise of 3.3% 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. Quote

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

Factors to Consider

Following a turbulent fourth-quarter 2018, agency MBS sector has benefited from Fed’s dovish stance and steepening of the U.S. treasury yield curve during first-quarter 2019. In fact, per data, in the first quarter, agency MBS recovered nearly half of negative excess return incurred in 2018 by posting an excess return of 28 basis points (bps) compared to treasuries.

Amid this, AGNC Investment’s Mar-end quarterly results are expected to benefit from its portfolio of Agency MBS. In fact, this February, the company raised capital by issuing 9 million depositary shares. Proceeds were used for the acquisition of agency as well as non-agency securities. In fact, significant widening of Agency MBS spreads during the fourth quarter is expected to increase returns on agency MBS.

Additionally, the company’s efforts to improve hedge portfolio and reduce duration gap will support its first-quarter performance. Furthermore, it enjoys solid access to attractive funding across a broad spectrum of counterparties and financing conditions.

However, the company might witness higher prepayments amid decline in mortgage rates during the to-be-reported quarter. Also, housing market slowdown and delayed refinancing is anticipated to negatively impact the company’s performance.

Moreover, the company prioritizes risk management over incremental returns. Although this is a strategic decision by the company, given the volatility in the current market, it hinders scope for it to realize robust returns on its portfolio in the first quarter as well.

In addition, changes in the spread between the company’s investments and other benchmark rates like swap and treasury rates are estimated to result in significant fluctuations in tangible net book value. Also, increase in interest-rate volatility and wider Agency MBS spreads may result in decline in the company’s book value.

Hence, there is lack of any solid catalyst prior to the first-quarter earnings release. As such, the Zacks Consensus Estimate of net spread and dollar roll income per common share for the quarter under review remained unrevised at 56 cents, over the past month. It also reflects year-over-year decline of 6.67%.

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 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank of 2.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and a Zacks Rank of 3.

Duke Realty Corporation DRE, set to release its quarterly numbers on Apr 25, has an Earnings ESP of +3.94% and carries a Zacks Rank of 3.

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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 Nasdaq, Inc.