Should You Consider Buying Annaly Stock Post Its Q4 Earnings?

Annaly Capital Management NLY came out with fourth-quarter 2024 results on Jan. 29. The company’s bottom line surpassed the Zacks Consensus Estimate. However, the top line missed the same.Annaly is a mortgage real estate investment trust that primarily owns, manages and finances a portfolio of real estate-related investment securities. The company's diversified approach to capital allocation has been crucial in its ability to navigate market fluctuations and maintain a competitive edge.Over the past year, NLY has demonstrated resilience in the face of economic uncertainties. The stock has gained 17.6% in the past year compared with the industry’s rise of 1.5%. The stock underperformed the S&P 500 index’s rise of 27.8% over the same time frame. Meanwhile, NLY’s peers AGNC Investment AGNC and Ellington Credit Company EARN have grown 18.6% and 25.3%, respectively.Price Performance Image Source: Zacks Investment Research Before discussing Annaly stock’s investment worthiness, let us check out its quarterly performance.Glance at NLY’s Q4 ResultsAnnaly reported adjusted earnings available for distribution (EAD) per average share of 72 cents compared with 68 cents in the year-ago quarter.Net interest income (NII) was $187.3 million in the reported quarter against a negative NII of $53.6 million in the prior-year quarter.As of Dec. 31, 2024, NLY’s book value per share was $19.15, down 1.5% from $19.44 in the prior-year quarter. At the end of the reported quarter, the company’s economic capital ratio was 14.6%, up from 14% in the prior-year quarter.The average yield on interest-earning assets (excluding premium amortization adjustment or PAA) was 5.26%, up from the prior-year quarter’s 4.64%. Let us delve deeper and analyze other factors to find out whether now is the right time to buy NLY stock.Annaly's Investment Strategy & Portfolio DiversificationNLY’s well-diversified capital allocation approach is one of its main advantages. The company's investment portfolio includes residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS). This comprehensive strategy aims to lower volatility and sensitivity to interest rate changes while simultaneously generating appealing risk-adjusted returns. As of Dec. 31, 2024, the company’s investment portfolio aggregated $80.9 billion.Annaly's diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better positioned to capitalize on opportunities as they occur in multiple areas while limiting the risks associated with overexposure to any particular area. In sync with this, in 2022, Annaly sold its Middle Market Lending portfolio and exited its commercial real estate business. Through these, the company was able to enhance capabilities across its core housing finance strategy and allocate capital to residential credit businesses, the MSR platform and Agency MBS. The company is also focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business.The inclusion of MSRs in the portfolio is also notable because these assets tend to increase in value as interest rates rise, offsetting reductions in the value of agency MBS. This hedging impact may produce more consistent returns over time and enable Annaly to perform well amid interest rate changes.NLY’s Strong Liquidity Position & Capital DistributionThe company is focused on improving its liquidity and reducing leverage. Till the end of the fourth quarter of 2024, the company enjoyed a strong liquidity position. Annaly had an unencumbered asset portfolio, aggregating $5.8 billion, which can readily provide liquidity in times of adverse market conditions.Annaly's strong liquidity position provides a substantial competitive edge in today's market. Strong liquidity enables the company to maintain its dividend distribution and respond rapidly to investment opportunities as and when required.Annaly has an impressive dividend yield of 13.06% compared with industry’s average of 11.39%. The company has a consistent dividend-paying history and a payout ratio of 98%, demonstrating its commitment to shareholder returns.NLY peers like AGNC and EARN also provide investors with solid dividend options. AGNC has an annual dividend yield of 14.6% and EARN has a dividend yield of 14.5%.Annaly to Benefit From Favorable Agency MBS OutlookNLY’s investment strategy involves traditional Agency MBSs, which provide downside protection and investments in more non-agency and credit-focused asset classes that enhance returns.The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. Annaly’s management is optimistic about the 2025 MBS outlook, given favorable dynamics across each of its businesses. During its fourth-quarter 2024 earnings conference call, management noted that the Agency MBS continues to provide attractive returns while an improved supply and demand picture, decreasing financing costs, and a steeper yield curve are additional sector tailwinds.Against this improved backdrop, NLY generated a positive economic return of 11.9% in 2024, driven by the company’s compelling monthly dividend. Its 2024 performance shows that it can generate robust investment returns when Agency MBS spreads are wide and steady.Hence, with $70.6 billion of its investment portfolio comprising highly liquid Agency MBSs (as of Dec. 31, 2024), Annaly is expected to enjoy attractive risk-adjusted returns in the fixed-income markets.Annaly to Gain From Fed Rate CutsAnnaly’s performance is influenced by interest rate changes. The Federal Reserve’s monetary policy has a big impact on the company's performance.The Fed lowered interest rates by 100 basis points in 2024. As such, the company’s NII rose to $247.8 million in 2024 against a negative NII of $111.4 million in 2023. The net interest spread increased to 0.40% at the end of 2024 from the negative net interest spread of 0.82% at 2023 end.However, despite interest rate cuts, mortgage rates have declined meaningfully. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.96% as of Jan. 23, 2025, marginally down from 7.04% in the previous week and up from 6.69% in the year-ago period.Nonetheless, the U.S. economy is expected to continue to expand decently this year, although at a slightly slower pace than in 2024. This, along with interest rate cuts, will drive mortgage rates lower at a gradual pace.Given increasing supply and relatively high mortgage rates, house price appreciation may remain moderate. This, along with an increase in home sales, should strengthen the purchase originations in the upcoming period. Refinance volumes are also likely to rise due to a gradual fall in mortgage rates.With improving purchase originations and refinancing activities, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield.Annaly Stock Trades at a PremiumFrom a valuation standpoint, NLY appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 0.93X, higher than the industry average of 0.88X.Price-to-Tangible Book TTM Image Source: Zacks Investment ResearchIs NLY Stock Worth Buying Now?With a relatively lower interest rate and favorable Agency MBS outlook, Annaly’s financials are expected to remain solid in the upcoming period.Sales Estimate Image Source: Zacks Investment Research A strong liquidity position allows the company to maintain its dividend policy while taking advantage of market difficulties to acquire assets at attractive valuations. Also, its diversified investment strategy could be a key contributor to long-term growth and stability.Considering NLY’s solid growth trajectory and favorable outlook, the company’s earnings have been revised upward for 2025 while remained unchanged for 2026 over the past 30 days.Estimate Revision Trend Image Source: Zacks Investment Research Find the latest earnings estimates and surprises on Zacks Earnings Calendar.While premium valuation is a headwind, NLY’s strong growth potential makes it worth collecting. Hence, investors should consider investing in the stock for solid long-term returns.The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AGNC Investment Corp. (AGNC): Free Stock Analysis Report Annaly Capital Management Inc (NLY): Free Stock Analysis Report Ellington Credit Company (EARN): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks