AGNC Investment Corp. AGNC is slated to report third- quarter 2024 earnings on Oct. 21. 

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

AGNC’s second-quarter results reflected an improvement in average tangible net book value and average asset yield on its portfolio.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and matched on one occasion, the earnings surprise being 10.02%, on average.

Earnings Surprise History

Image Source: Zacks Investment Research
 

Let us check out how AGNC is expected to fare in terms of revenues and earnings this time. 

In the past 30 days, the consensus estimate for earnings has been unchanged at 50 cents. This suggests a 23.1% decline from the 67 cents reported in the prior-year quarter.

The Zacks Consensus Estimate for revenues is pegged at $419 million, whereas it reported negative revenues of $53 million in the year-ago quarter. 

Trends Leading up to AGNC’s Q3 Results

On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. With this, mortgage rates started to come down. 

The 30-year fixed mortgage rates decreased to 6.2% at the end of the third quarter from 6.86% as of second-quarter 2024 and from the high of 7.31% in third-quarter 2023. This is likely to have resulted in a rise in mortgage demand. Yet, origination volumes (particularly purchase originations) remained subdued compared with the prior quarter’s levels.

Yet, supported by lower mortgage rates, refinancing activities witnessed a significant surge. Amid this, a large part of AGNC Investment’s mortgage-backed securities (MBS) holdings is anticipated to have witnessed elevated levels of constant prepayment rates. 

This is expected to have positively impacted net premium amortization in the third quarter, supporting growth in interest income and average asset yield. The Zacks Consensus for interest income is pegged at $729 million, suggesting an increase of 4.9% from the second-quarter 2024 reported figure.

Though the Fed lowered the interest rate, it is not expected to have had much impact on AGNC’s net interest income (NII) in the third quarter.

The consensus estimate for NII is pegged at $219.3 million compared with the net interest loss of $3 million in the quarter-ago period.

Higher volatility in the fixed-income markets is likely to have increased asset impairment risks and hedging mismatches for AGNC Investment in the quarter under review. 

Nonetheless, a positively sloped yield curve might have supported mortgage REIT’s valuations. With a steeper yield curve, agency mortgage REITs are likely to have witnessed a tangible book value increase as spreads on benchmark indices have tightened during the quarter. This is likely to have increased AGNC Investment’s book value per share in the quarter to be reported.

What Our Model Unveils for AGNC Investment

Our proven model does not conclusively predict an earnings beat for AGNC Investment this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

AGNC has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGNC’s Price Performance & Valuation

AGNC underperformed the S&P 500 in the first nine months of 2024. Other REIT and Equity Trust stocks like Annaly Capital Management NLY and Arbor Realty Trust ABR underperformed the S&P 500 index in the same time frame. AGNC, NLY and ABR outperformed the industry in the first nine months of 2024.

Price Performance

Image Source: Zacks Investment Research

NLY is scheduled to report its third-quarter earnings on Oct. 23, whereas ABR is expected to report its third-quarter 2024 results on Oct. 25.

Now, let us look at the value AGNC offers investors at current levels.

Currently, the AGNC stock is trading at 1.18X forward 12 months price/tangible book TTM (P/TB TTM), above its median level of 1.00X and the industry’s P/TB TTM multiple of 0.98X. The company’s valuation looks somewhat expensive compared with the industry average and its range.

Price/Tangible Book TTM

Image Source: Zacks Investment Research

Investment Thesis on AGNC

AGNC Investment is well poised to benefit as it adheres to an active portfolio-management policy, which includes re-evaluation and adjustment of its portfolio and hedges amid a varying interest rate and mortgage market environment. The company focuses on leveraged investments in Agency residential MBS. That includes residential mortgage pass-through securities and collateralized mortgage obligations. The GSE guarantee for the principal and interest payments makes Agency MBS a safer investment choice. 

With the Fed indicating more rate cuts for this year and 2025, this should help boost AGNC's net interest spread and the book value of its portfolio. This will provide the company and the stock a much-needed boost going forward.

The company rewards its shareholders handsomely. AGNC’s current dividend yield is 13.97%. This is impressive compared with the industry’s average of 11.2% and attracts investors as it represents a steady income stream.

The ultra-high dividend yield and regular payout look eye-catching for most investors watching for high-income funds. However, in April 2020, AGNC slashed its dividend by 25% to 12 cents per share and continued to pay the same amount in later periods. It has a history of cutting its dividends at times of economic distress.

Final Words on AGNC Investment

As AGNC Investment approaches announcing its third-quarter 2024 earnings results, a steeper yield curve and higher refinancing activities paint a positive picture for the company.

However, volatility in the mortgage market, unfavorable changes in the shape of the yield curve and the deterioration of the generic financial conditions are likely to have affected AGNC's performance in the quarter under review.

Although AGNC has a high dividend yield and provides a regular income option, investors might be unable to rely on it over time. The company has a record of lowering dividends during stressful times. Prospective investors should exercise caution as any volatility in the interest rate will affect AGNC Investment’s performance. 

To conclude, investors interested in AGNC stock should wait for a better entry point, considering its premium valuation. They should analyze the company’s upcoming earnings release and market volatility closely before making an investment decision. So, it might not be a wise investment decision to bet on the stock at the moment.

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

Arbor Realty Trust (ABR) : Free Stock Analysis Report

Annaly Capital Management Inc (NLY) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research