Annaly Capital Management (NLY): Assessing Valuation After Fed Signals Interest Rate Cuts and Mortgage Rate Lows

If you own or watch Annaly Capital Management (NLY), the latest market action probably caught your attention. Shares jumped after Federal Reserve Chair Jerome Powell’s surprisingly dovish tone at the Jackson Hole symposium, hinting at potential interest rate cuts ahead. Coupled with mortgage rates dropping to year lows, this shift in policy signals could reshape how investors view the risk and reward balance for mREITs like Annaly, especially as falling rates often lead to improved origination and refinancing for mortgage portfolios.

This week’s rate optimism gave Annaly’s stock a new jolt, continuing a trend that’s seen shares climb more than 20% over the past year and nearly 15% year-to-date. Longer-term holders have also enjoyed steady gains, with momentum clearly building over the past three months as the company benefits from a friendlier interest rate landscape and growing expectations for stronger net interest spreads. Recent annual growth in both revenue and net income further adds to the sense that a real shift could be underway for Annaly and its peers.

After this year’s strong push, is Annaly Capital Management undervalued given its outlook, or has the market already priced in these benefits as investors pursue the mREIT rebound?

Most Popular Narrative: Fairly Valued

According to community narrative, Annaly Capital Management is considered fairly valued, with the current share price nearly matching the average analyst price target based on future earnings and margin expectations.

Analysts have a consensus price target of $20.93 for Annaly Capital Management, reflecting their expectations of future earnings growth, profit margins, and other risk factors. The relatively small difference between the current share price and the analyst consensus price target suggests that, on average, the company is fairly priced.

What drives this narrow margin between bullish and bearish views? The narrative depends on bold assumptions about the company’s ability to grow both revenue and profits, while maintaining discipline on share count and valuation multiples. How confident are you in these ambitious projections and their impact on fair value? Be sure to consider these key assumptions carefully.

Result: Fair Value of $20.93 (ABOUT RIGHT)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent interest rate volatility or sudden shifts in the housing market could challenge Annaly’s future earnings trajectory and could alter current expectations for growth.

Find out about the key risks to this Annaly Capital Management narrative.

Another View: Our DCF Model Shows a Different Picture

While analysts see Annaly trading around fair value based on their future estimates, our SWS DCF model tells a different story. According to this model, the shares may actually be undervalued. Which model do you trust more for forward-looking mREITs?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Annaly Capital Management for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Annaly Capital Management Narrative

If you see things differently or want to dig into the data on your own terms, you can quickly shape your personal take in just a few minutes with do it your way.

A great starting point for your Annaly Capital Management research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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