Is Most-Watched Stock Annaly Capital Management Inc (NLY) Worth Betting on Now?

Annaly Capital Management (NLY) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.

Shares of this real estate investment trust have returned +1.2% over the past month versus the Zacks S&P 500 composite's +3.6% change. The Zacks REIT and Equity Trust industry, to which Annaly belongs, has lost 2% over this period. Now the key question is: Where could the stock be headed in the near term?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Annaly is expected to post earnings of $0.65 per share, indicating a change of -19.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +1.8% over the last 30 days.

The consensus earnings estimate of $2.62 for the current fiscal year indicates a year-over-year change of -8.4%. This estimate has changed -0.5% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $2.68 indicates a change of +2% from what Annaly is expected to report a year ago. Over the past month, the estimate has changed -2.2%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Annaly is rated Zacks Rank #4 (Sell).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

In the case of Annaly, the consensus sales estimate of $320 million for the current quarter points to a year-over-year change of +1544.4%. The $1.29 billion and $1.3 billion estimates for the current and next fiscal years indicate changes of -1259.1% and +0.6%, respectively.

Last Reported Results and Surprise History

Annaly reported revenues of $-53.55 million in the last reported quarter, representing a year-over-year change of -139.6%. EPS of $0.68 for the same period compares with $0.89 a year ago.

Compared to the Zacks Consensus Estimate of $296 million, the reported revenues represent a surprise of -118.09%. The EPS surprise was +6.25%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company could not beat consensus revenue estimates in any of the last four quarters.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Annaly is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Annaly. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term.

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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.

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