2023-04-25 15:38:21 ET
Annaly Capital Management ( NYSE: NLY ) is slated to deliver its first-quarter results after Wednesday's close, in which the mortgage REIT is expected to turn in earnings available for distribution of $0.75, vs. $0.89 in the last quarter of 2022 and $0.98 a year before.
Over the last 12 quarters, the company has exceeded Wall Street profit expectations each time. Still, analysts have lowered their operating EPS expectations by 12.1% over the last three months and 13.3% over the last six months.
Piper Sandler analyst Kevin Barker, meantime, sees Q1 EPS for distribution of $0.74, vs. $0.67 in his prior view, "to take into account balance sheet positioning."
"We expect NLY to be cautiously optimistic as more attractive investment opportunities are offset by uncertainty surrounding bank failures and a potential Fed pivot," he wrote in a recent note to clients. Barker also pointed out that the company's recent move to cut its dividend signals "NLY will see margins squeezed by higher funding and hedging costs in volatile markets."
NLY edged down 1.5% in Tuesday mid-afternoon trading, extending its year-to-date slump to 10.6% .
Seeking Alpha contributor Thomas Prescott noted that NLY fares well when the Federal Reserve Effective Funds Rate doesn't rise, citing more than two decades worth of data. Since March 2022, the central bank has lifted its benchmark rate target range from near zero to 4.75%-5.0%, and monetary authorities have signaled that at least one more rate hike is on the table.
As such, the backdrop generally remains tough for mortgage REITs, said SA's Geoffrey Seiler. "Interest rates need to stop going up and mortgage spreads need to tighten for them to really work. At some point that is going to happen, and the market does typically like to react months before it expects something to happen."
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Annaly Capital Management Q1 earnings seen sliding amid higher rates