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With the Federal Reserve keeping rates high to cool inflation, AGNC Investment's (NASDAQ:AGNC) Q4 earnings, to be reported on Monday, will still be under pressure.
The mortgage REIT is expected to earn net spread and dollar roll income of $0.58 per share in Q4 2023, slipping from $0.65 in Q3 and $0.74 in Q4 2022.
In the past three months, five analysts lowered their earnings estimates and two have increased theirs; in total, the Q4 consensus has dropped 1.6%. But sentiment may be turning; in the past month, Q4 earnings estimate net revisions were slightly positive.
The company that invests in home mortgages has a stellar track record of beating the average analyst estimate, having exceeded the consensus in each of the past 12 quarters.
One area of interest will be AGNC's net interest income. With interest rates at the highest levels in decades, the mortgage REIT's interest expenses have climbed more than the interest it collects, resulting in negative net interest income for the past three quarters. Net interest income was -$53M in Q3, -$69M in Q2, and -$98M in Q1. The last time AGNC had positive NII was $25M in Q4 2022.
While mortgage REITs overall, and AGNC (AGNC) in particular, are expected to benefit when the Federal Reserve lowers interest rates later this year, that's not likely to show up in Q4 2023. Mortgage-backed securities' values rise as interest rates fall, benefiting those who invest in MBSs.
Note that in December BTIG analyst Eric Hagen raised his price target on AGNC (AGNC) to $10.50 from $9, as "more upside could be drawn from lower interest rates and tighter MBS spreads."
In a note dated Jan. 19, Hagen pointed out that he sees some net interest margin sensitivity for Annaly (NLY) and AGNC (AGNC), "as they look to replace short duration hedges between now and year-end." Timing could be a "blessing" if the Fed starts cutting as the hedges roll off, he added.
SA Analyst The Asian Investor sees revaluation potential for AGNC (AGNC) (and Annaly (NLY)), which could come from two sources — lower interest expenses which can take pressure off AGNC's net interest income, and AGNC's MBS portfolio is set to rise in a lower-rate environment, sparking book value per share and tangible common equity growth.