NLY: Easing Mortgage Costs Will Support Moderately Improved Future Returns

Annaly Capital Management's fair value estimate has inched higher to approximately $22.18 from $22.10, as analysts modestly raise price targets toward $22.50 in response to improving mortgage market dynamics, including lower 30 year rates and tightening agency spreads that are beginning to lift refinancing and application volumes.

Analyst Commentary

Bullish analysts see the recent price target increases as validation that Annaly's earnings power is improving alongside more constructive mortgage market conditions. They view this as supporting incremental upside to the shares from current levels.

They point to a more favorable backdrop for agency mortgage REITs as 30 year mortgage rates drift lower and spreads tighten, which can enhance portfolio carry, stabilize book value, and potentially unlock higher returns on new capital deployment.

Bullish Takeaways

Bullish analysts argue that the move in the fair value and targets toward $22.50 reflects better visibility into sustainable earnings as funding and asset yields move into a more balanced range.
Lower 30 year mortgage rates and tighter agency spreads are seen as supportive of improved asset pricing and reduced mark to market volatility, which can stabilize net asset value and justify higher valuation multiples.
The 38 percent sequential increase in refinancing driven mortgage applications is viewed as an early sign of healthier market turnover, which should support fee and spread income opportunities over time.
Maintained positive ratings alongside higher targets signal confidence in management’s execution in repositioning the portfolio for the evolving rate environment. This is seen as reinforcing the case for modest multiple expansion.

Bearish Takeaways

Bearish analysts emphasize that, despite recent improvements, the mortgage market is still not at a normalized state. This limits visibility into how durable the current spread environment and earnings trajectory will be.
They note that tighter agency spreads, while positive for book value stability, can compress forward return potential on new investments if funding costs do not decline in tandem.
Some are cautious that a sharp reversal in rates or spreads could quickly erode recent valuation gains, underscoring ongoing sensitivity of the model to macro conditions.
There is concern that current price targets may already embed optimistic assumptions on sustained application and refinancing strength, leaving less room for execution missteps or macro disappointments.

What's in the News

Annaly Capital Management, Inc. was removed as a constituent from the FTSE All World Index (USD). This may affect index fund ownership and trading liquidity (Key Developments).
The company reported that it repurchased zero shares from July 1, 2025 to September 30, 2025, leaving the latest buyback authorization effectively unused during that period (Key Developments).

Valuation Changes

The Fair Value Estimate has risen slightly to approximately $22.18 from $22.10, reflecting a modest upward revision in the intrinsic value assessment.
The Discount Rate has fallen marginally to about 9.17 percent from 9.20 percent, implying a slightly lower required return in the valuation model.
The Revenue Growth assumption has increased slightly to roughly 30.88 percent from 30.53 percent, indicating a modestly more optimistic outlook for top line expansion.
The Net Profit Margin forecast has edged down to about 83.21 percent from 83.94 percent, suggesting a small reduction in expected profitability levels.
The Future P/E multiple has risen minimally to around 7.40x from 7.37x, signaling a very modest increase in anticipated valuation relative to forward earnings.

Strategic positioning in MSR and Agency MBS portfolios enhances revenue and net margins through attractive spreads and hedging strategies.
Improved financing and economic leverage elevate earnings distribution, bolstering revenue growth and strong margins.
Rising interest rates, economic uncertainty, and increased competition may pressure Annaly's portfolio returns, market share, and profitability across various mortgage sectors.

Catalysts

About Annaly Capital Management

A diversified capital manager, engages in the mortgage finance business.What are the underlying business or industry changes driving this perspective?

Annaly Capital Management is well-positioned within its MSR business due to the lower profitability of mortgage lenders, which leads to a need to quickly offload MSRs. This could enhance revenue by acquiring MSR at attractive rates as originators seek liquidity.
The residential credit portfolio is expected to see growth through increases in securitization despite tighter credit spreads and greater issuance activities, suggesting an impact on revenue and potentially net margins as discipline remains a priority.
Agency MBS spreads remain attractive on an absolute and relative basis due to improved technicals and the ongoing Fed rate cutting cycle. Coupled with a conservative hedging strategy, this should enhance net interest margin.
The business is benefiting from a strategic shift in coupon allocation by positioning in higher coupon segments (6% and 6.5%) within its Agency MBS portfolio, potentially enhancing the economic return and net margins.
Improved financing costs and economic leverage, along with $400 million in accretive common equity raised, have set the stage for increased earnings available for distribution, thus supporting revenue growth and stronger margins moving forward.

Annaly Capital Management Earnings and Revenue Growth

Annaly Capital Management Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Annaly Capital Management's revenue will grow by 46.9% annually over the next 3 years.
Analysts assume that profit margins will increase from 53.7% today to 95.3% in 3 years time.
Analysts expect earnings to reach $3.2 billion (and earnings per share of $3.04) by about September 2028, up from $575.1 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.0x on those 2028 earnings, down from 24.0x today. This future PE is lower than the current PE for the US Mortgage REITs industry at 14.1x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Annaly Capital Management Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising interest rates and market volatility have led to wider mortgage spreads and could negatively impact Annaly's portfolio returns, posing a risk to future earnings growth.
High inflation and economic uncertainty may affect the U.S. housing market dynamics, potentially impacting Annaly's residential credit and agency MBS businesses' revenue and profitability.
Increased competition from private equity, asset managers, and insurance companies in the non-agency mortgage market could pressure Annaly's market share and margins.
Changes in GSE reform and the potential reduction of the GSE footprint could alter the competitive landscape of the mortgage market, impacting Annaly’s revenue from new opportunities.
Elevated hedging costs and prolonged periods of interest rate volatility could erode the returns on Annaly's Agency MBS investments, affecting overall net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $21.023 for Annaly Capital Management based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.4 billion, earnings will come to $3.2 billion, and it would be trading on a PE ratio of 7.0x, assuming you use a discount rate of 11.0%.
Given the current share price of $21.49, the analyst price target of $21.02 is 2.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Grow More Optimistic as Annaly Capital Price Target Rises Amid Market Shifts