AGNC Investment (AGNC) Down 5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for AGNC Investment (AGNC). Shares have lost about 5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AGNC Investment due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AGNC Investment’s Q4 Earnings Beat Estimates, NII Up

AGNC Investment reported fourth-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 57 cents per share, beating the Zacks Consensus Estimate of 53 cents. However, the reported tally came in lower than the prior-quarter figure of 59 cents per share.

Net interest income (NII) of $287 million came in higher than the prior-quarter figure of $119 million.

For full-year 2019, net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) came in at $2.16, ahead of the Zacks Consensus Estimate of $2.12. Further, NII for full-year 2019 was $693 million.

The company reported fourth-quarter comprehensive income per common share of $1.59, significantly higher than the prior-quarter tally of 42 cents per share.

Also, as of Dec 31, 2019, the company’s tangible net book value per share came in at $17.66, up 6.7% from $16.55 as of Sep 30, 2019. Further, it compares favorably with the tangible net book value per share of $16.56 as of Dec 31, 2018.  

The economic return on tangible common equity for the company during the reported quarter was 9.6%. This included dividend per share of 48 cents and an increase of $1.11 in tangible net book value per share.

Inside the Headlines

As of Dec 31, 2019, the company’s investment portfolio aggregated $107.9 billion. This included $98.9 billion of agency MBS, $7.4 billion of TBA securities, and $1.6 billion of credit risk transfer and non-agency securities.

Inclusive of its net TBA position and net payable/ (receivable) for unsettled securities, AGNC Investment’s tangible net book value "at risk" leverage ratio was 9.4x as of Dec 31, 2019, compared to 9.8x as of Sep 30, 2019.

For the December-end quarter, the company's investment portfolio bore a weighted average constant prepayment rate (CPR) of 15.4%, up from the 13.5% witnessed in third-quarter 2019.

Excluding net TBA position, AGNC Investment's average asset yield on its portfolio, excluding the net TBA position, came in at 3.28% in the fourth quarter, up from the 2.91% recorded in the previous quarter.

For the October-December period, combined average cost of funds inclusive of interest rate swap costs came in at 1.76%, down from the 1.85% witnessed in the previous quarter.

Combined annualized net interest spread (excluding estimated catch- up premium amortization benefit), came in at 1.33%, up from the 1.31% reported in the prior quarter.

As of Dec 31, 2019, AGNC Investment’s cash and cash equivalents totaled $831 million, down from $921 million as of Dec 31, 2018.

Dividend Update

During the fourth quarter, AGNC Investment announced monthly dividend of 16 cents per share for October, November and December, respectively. Notably, the company announced a total of $9.6 billion in common stock dividends or $41.32 per common share since its initial public offering in May 2008 through fourth-quarter 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 6.13% due to these changes.

VGM Scores

Currently, AGNC Investment has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise AGNC Investment has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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