AGNC Investment Corp. AGNC is slated to report fourth-quarter 2024 earnings on Jan. 27, after market close. 

AGNC's close peers Annaly Capital Management NLY is slated to announce quarterly numbers on Jan. 29, while Arbor Realty Trust ABR will come out with its performance details on Feb 21. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

AGNC’s third-quarter results reflected an improvement in average asset yield on its portfolio, while its tangible book value was unchanged from the prior quarter.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the earnings surprise being 4.38%, on average.

AGNC Investment Corp. Price and EPS Surprise

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

In the past 30 days, the consensus estimate for earnings has been unchanged at 42 cents. This suggests a 30% decline from the 60 cents reported in the prior-year quarter.

The Zacks Consensus Estimate for revenues is pegged at $215.5 million, whereas it reported negative revenues of $26 million in the year-ago quarter.

Trends Leading Up to AGNC’s Q4 Results

Since September 2024, the Federal Reserve has reduced interest rates by 100 basis points (bps). Despite this, mortgage rates have not fallen significantly.
The 30-year fixed mortgage rates in the fourth quarter of 2024 were close to 6.8%, slightly higher than the 6.2% observed at the end of the third quarter. This is likely to have resulted in a rise in mortgage demand.  However, refinancing activities and origination volume remained decent.

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 fourth quarter, supporting growth in interest income and average asset yield. The Zacks Consensus for interest income is pegged at $813.4 million, suggesting an increase of 7.6% from the third-quarter 2024 reported figure.

As the Fed lowered the interest rate, it is expected to have positively impacted  AGNC’s net interest income (NII) in the fourth quarter.

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 is expected to have supported mortgage REIT’s valuations. The yield curve steepened and then normalized in the quarter. With this, 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 Investment underperformed the industry in the fourth quarter of 2024. Other REIT and Equity Trust stocks like NLY outperformed the industry, while ABR underperformed in the same time frame.

Price Performance

Image Source: Zacks Investment Research

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

Currently, the AGNC stock is trading at 1.05 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 0.88X. 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. 

The long-term outlook for Agency MBS remains favorable. Agency MBS spreads have been in a range that supports positive long-term risk-adjusted returns for leveraged investors like AGNC. At these levels, Agency MBS provides a significant incremental yield over U.S. Treasuries and investment-grade corporate paper, driving the demand for Agency MBS. Given the positive supply-demand dynamic for Agency MBS and the improved monetary policy outlook, present returns and prospects for AGNC Investment look favorable.

The Fed indicated more rate cuts for 2025, which should help boost AGNC's net interest spread and the book value of its portfolio. This will provide the company’s stock a much-needed boost.

AGNC Investment rewards its shareholders handsomely. AGNC’s current dividend yield is 14.80%. 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 approaches its fourth-quarter 2024 earnings results, a steeper yield curve and decent refinancing activities paint a positive picture for the company.
The Fed's adjustment in monetary policy is expected to boost AGNC Investment’s net interest spread and the book value of its portfolio. However, in the near term, its earnings are expected to remain under pressure as hedges roll off.

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 the 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