| Snowflake Score | |
|---|---|
| Valuation | 3/6 |
| Future Growth | 5/6 |
| Past Performance | 0/6 |
| Financial Health | 1/6 |
| Dividends | 3/6 |
AGNC Stock Overview
AGNC Investment Corp. operates as a real estate investment trust (REIT) in the United States.
AGNC Investment Corp. Competitors
Price History & Performance
| Historical stock prices | |
|---|---|
| Current Share Price | US$12.51 |
| 52 Week High | US$16.75 |
| 52 Week Low | US$9.99 |
| Beta | 1.07 |
| 1 Month Change | 3.22% |
| 3 Month Change | 6.38% |
| 1 Year Change | -22.25% |
| 3 Year Change | -20.06% |
| 5 Year Change | -42.19% |
| Change since IPO | -35.35% |
Recent News & Updates
AGNC's Lively Chat Concerning Its Opportunistic Business Position
AGNC's dividend remains at $0.12 per month. Increased bond spreads yielded stronger cash flow generation. Management believes that, by October, leverage can be increased, bolstering Tangible Net Asset Value. Though watchful, we are adding additional shares, slowly. With AGNC (AGNC) minting money, as predicted, we lift our view from a cautious ownership to a guarded buy. Management's proven understanding of its business model appeared within this last quarter. So we knock on the door, wait on the butler and enter for a better view. The Quarter The following slide summarizes the key markers for the June quarter performance. AGNC Management offered several comments on the health of the business at the end of the quarter. "I will also discuss the improvement in our earnings and why we believe AGNC is entering a favorable environment that will be conducive to generating strong risk-adjusted returns for our shareholders," stated Peter Federico, AGNC CEO. Bernie Bell, AGNC CFO, added this, "Our net interest spread for the second quarter increased over 50 basis points to 270 basis points, our highest level in well over a decade. Thus, despite our smaller asset base, our net spread and dollar roll income, excluding catch-up, increased $0.11 to $0.83 per share for the quarter." The spread between the current coupon MBS and the 10-year treasury note widened to extreme values, resulting in continued tangible common equity weakness. Management views this positively, offering rare advantageous purchasing possibilities. The company noted a very clever move with its stock. It sold $50 million of common equity at $12.19 buying it back later at a price of $10.78 netting just under $1.50 per share in profit. The company slightly lowered its leverage by one point from 7.5 to 7.4 and significantly lifted its hedge ratio stating (slide 10), "Our hedge portfolio totaled $72.5 B and covered 126% of our funding liabilities (Agency Repo, other debt and net TBA position) as of Jun 30, 2022, compared to 121% as of Mar 31, 2022." Past Predictions In our Seeking Alpha article, AGNC Investment's Achilles Heel, we discussed two important issues facing investors. Management clearly stated that tangible common equity isn't hedged and would float negatively during interest rate hikes. They also added that income-generating spreads would widen adding cash. At this last conference, management stated, "we have discussed, wider spreads ultimately lead to enhanced earnings on our existing portfolio. The second quarter provides a great example of this dynamic as our net spread and dollar roll income increased nearly 15% to $0.83 per common share. Our net interest margin also improved materially." The net asset value decreased predictably. State of the Business The call offered the investor several important windows into the business. Current valuation levels for Agency MBS are attractive of which history indicates are at excellent buying points. Asset sale risks by the Fed are extremely low. (The Fed plans to adjust rates not balance sheet reduction). The "supply outlook for Agency MBS has improved materially being expected at a much lower value $400 billion versus $700 billion." (This is positive for the agency MBS markets). Management believes that the signs of weakness are nearing an end. AGNC is now looking for opportunities to begin increasing leverage. Management also noted, "Our expectation is that the persistent housing shortage will continue to support housing prices." Aaron Pas, Senior Vice President, Non-Agency Portfolio Management, added in the last comment of the prepared remarks, "As recession concerns will likely lead to continued spread volatility and potential - potentially better entry points." A Lively Chat Sometimes the best information exchange transpires during the Q&A. We believe that that was the case during the last call. Kevin Barker, of Piper Sandler, asked, "...It seems like you are fairly bullish on the investment outlook. Why not push a little harder here on leverage in order to take advantage of that given these are some of the best investment returns... seen for quite some time? Federico answered, "given all of the uncertainty in the market has been to err on the side of being more conservative given the challenges that the market faced... We are still seeing extreme interest rate volatility, which, as Chris said, is a headwind to Agency MBS performance." and what we described today, is significant improvement in some of the key indicators for the Agency MBS market, whether it be supply or the credit outlook or the stability of the Fed or the stock effect of the Fed or, as you point out, absolute returns... So I think we have another month or 2 or 3 to get through this period." Doug Harter of Credit Suisse asked, "And how you think that should trend versus the dividend level versus kind of the earnings levels and just what - how do you think about that?" The CEO answered the question in two manners neither one made sense to us. "Said another way, ...say, 15% times the book value... at $11.43 would say that the economic earnings on our portfolio should be something in the neighborhood of around $1.75 a share, $0.28 or $0.30 above our current dividend level." With the Net Spread and Dollar Roll earnings at $0.83 per share, we question why AGNC believes its dividend is $0.30 below fair value? Shouldn't it be far more below? Trevor Cranston, of JMP Securities asked, "it sounds like you guys are staying a little bit cautious near-term because of the high levels of rate volatility, ...And so I am wondering if - as you see sort of some normalization of volatility over the next couple of months..."
AGNC Investment And Annaly Q2: Yes, It Can Get Worse
I see the housing market entering a perfect storm, and mREIT players like AGNC Investment and Annaly Capital unfortunately will be at the center of it. Usually, mREIT players are hurt twice by when rates rise - higher borrow costs and lower mortgage needs. This time, they are also getting pressured by record inflation and the housing bubble unexpectedly created by the COVID pandemic. These factors are likely to cause substantial book value losses, resulting in unattractive or even negative total shareholder yield. Thesis I have been very concerned about the house bubble that has formed during the pandemic and closely monitoring its bursting. And the recent Q2 earnings report ("ER") from AGNC Investment (AGNC) and Annaly Capital (NLY) just provided more data to assess the degree of the bursting. And unfortunately, my view is that it can still get worse from here. Let's start from a 30,000 feet point of view, as shown in the chart below, taken from Freddie Mac. Mortgage rates currently stand at a level roughly on par with those seen from 2003 to 2007 before the 2008 great recession. Take 30-Yr FRM rates as an example, it rose sharply from 3.01% about 1 year ago to the current 5.3%. Freddie Mac Higher interest rates and higher borrowing rates hurt mREITs at least twice. First, they cause higher borrowing for the mREIT businesses and squeeze their profits. Second, demand for new mortgages also weakens because higher rates make houses less affordable for potential buyers. Both AGNC and NLY are reporting these impacts in their ER, with no surprise, as to be detailed in the next section. And I see both trends continuing in the near future. Moreover, this time, I also see they are getting pressured from two other directions. Record inflation will also cause difficulties for EXISTING HOMEOWNERS to service their mortgages, creating the potential for delinquencies or even foreclosure. Consequently, mREIT leaders such as AGNC and NLY will suffer book value losses. And the housing bubble unexpectedly created by the COVID pandemic will exacerbate the problem. Now, let's move on to examine these impacts for NLY and AGNC specifically. Affordability declined The impacts of rising rates and mortgage rates have already been felt ahead of their Q2 ER. For example, the Mortgage Bankers Association ("MBA") observed in early June that (the emphasis was added by me): Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years. The 30-year fixed rate increased to 5.4% after three consecutive declines. While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. And the results and comments from both NLY and AGNC during their Q2 ER only added more data points to confirm the above observation. As NLY CEO David Finkelstein commented (abridged and emphases added by me): Home prices have continued to risk sharply, appreciating over 10% the first five months of the year, according to the Case-Shiller Index. Housing activity, however, has slowed recently as the highest mortgage rates since 2008 and 40% cumulative home price appreciation since the start of the pandemic has weighed on both consumer and builder sentiment. Affordability for prospective home owners has been significantly reduced with mortgage payments 50% higher year-over-year on a national average. This is curbing consumers' ability to purchase homes and in turn is reducing demand for mortgages. To wit, the monthly mortgage payment on the median existing was near the $1000 per month level before the pandemic as you can see from the following chart. It sharply rose to the current level of almost $1800 per month. In the past year alone, it rose about 51%. NLY Q2 Earnings Report Rising cost of funds and negative economic return Besides weakening the demand for new mortgages and refinances, the rising rates are also hurting their profit spreads. Take AGNC as an example, the following chart shows it average cost of funds in the past few quarters. As you can see, its cost fund has been 0.88% pre-pandemic. Then it dropped to essentially 0 when the pandemic broke out and the Fed had to implement a hard landing. It even enjoyed two quarters of negative costs (i.e., it was paid to borrow money) during the third and fourth quarters of 2021. Then the music stopped, and the rates began to rise as the Fed had to combat inflation. In its Q2 ER, AGNC just reportedly its Q2 average cost of funds is 0.18%. AGNC Q2 Earnings Report Now note that the Fed just increased the rates by another 75 basis points after its ER. And the 0.18% cost was before this raise. Therefore, investors should expect an even higher average cost of funds for the incoming quarter. And I see a good chance for its cost of funds to gradually revert back to the 0.88% level. And even at its current level, it is already reporting negative economic returns as you can see from the following chart. Here, the economic return is defined as the change in tangible net book value per common share plus dividends per common share declared. Its economic return has been -14.4% during Q1 this year and -10.1% in the past quarter. AGNC Q2 Earnings Report NLY and AGNC: book value losses As aforementioned, besides weakening mortgage and rising borrowing costs, this time, I also see NLY and AGNC getting hurt from two other directions. First, record inflation will also cause difficulties for EXISTING HOMEOWNERS to service their mortgages. As NAR (National Association of Realtors) Chief Economist Lawrence Yun commented below (emphasis added by me): The Russia-Ukraine war and escalating fuel prices have contributed to further housing unaffordability for buyers. Mortgages now compared to just a few months ago are costing more money for home buyers. For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family. Secondly, the pandemic unexpectedly created a housing bubble. Demand has increased as a result of the need for remote employment. And Fed's landing resulted in historically low mortgage rates, further encouraging the demand and driving up prices. Now as the trends, both in borrowing cost and in housing demand, start reverting, it is very likely that the housing market begins to see increases in delinquencies or even foreclosure, which will lead to book value losses. And both AGNC and NLY have reported sizable book value losses in Q2 already. For ANGC, its tangible net book value per common share fell to $11.43 from $13.12 last quarter, a 12.8% loss. And for NLY, its book value fell by a similar amount, by 13% this quarter.
Shareholder Returns
| AGNC | US Mortgage REITs | US Market | |
|---|---|---|---|
| 7D | -2.1% | -0.4% | 1.4% |
| 1Y | -22.3% | -16.1% | -8.4% |
Return vs Industry: AGNC underperformed the US Mortgage REITs industry which returned -16.1% over the past year.
Return vs Market: AGNC underperformed the US Market which returned -8.4% over the past year.
Price Volatility
| AGNC volatility | |
|---|---|
| AGNC Average Weekly Movement | 4.5% |
| Mortgage REITs Industry Average Movement | 5.4% |
| Market Average Movement | 7.6% |
| 10% most volatile stocks in US Market | 17.1% |
| 10% least volatile stocks in US Market | 3.1% |
Stable Share Price: AGNC is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 5% a week.
Volatility Over Time: AGNC's weekly volatility (5%) has been stable over the past year.
About the Company
| Founded | Employees | CEO | Website |
|---|---|---|---|
| 2008 | 50 | Peter Federico | https://www.agnc.com |
AGNC Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by the United States government-sponsored enterprise or by the United States government agency. It funds its investments primarily through collateralized borrowings structured as repurchase agreements.
AGNC Investment Corp. Fundamentals Summary
| AGNC fundamental statistics | |
|---|---|
| Market Cap | US$6.63b |
| Earnings (TTM) | -US$1.00b |
| Revenue (TTM) | n/a |
-8.0x
P/S Ratio-6.5x
P/E RatioIs AGNC overvalued?
See Fair Value and valuation analysisEarnings & Revenue
| AGNC income statement (TTM) | |
|---|---|
| Revenue | -US$817.00m |
| Cost of Revenue | US$0 |
| Gross Profit | -US$817.00m |
| Other Expenses | US$183.00m |
| Earnings | -US$1.00b |
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
n/a
| Earnings per share (EPS) | -1.91 |
| Gross Margin | 100.00% |
| Net Profit Margin | 122.40% |
| Debt/Equity Ratio | 541.0% |
How did AGNC perform over the long term?
See historical performance and comparisonDividends
11.5%
Current Dividend Yield-76%
Payout RatioDoes AGNC pay a reliable dividends?
See AGNC dividend history and benchmarks| AGNC Investment dividend dates | |
|---|---|
| Ex Dividend Date | Aug 30 2022 |
| Dividend Pay Date | Sep 12 2022 |
| Days until Ex dividend | 10 days |
| Days until Dividend pay date | 23 days |
Does AGNC pay a reliable dividends?
See AGNC dividend history and benchmarks