NEW YORK (TheStreet) -- Annaly Capital Management (NLY) received an upgrade to "Market Perform" from "Underperform," on Thursday, as Wells Fargo analysts argued the risk of elevated mortgage prepayments as borrowers refinance their homes may be priced into the shares of the mortgage Real Estate Investment Trust (REIT).
The analysts, led by Joel Houck, believe Annaly will increase book value by 5% to 10% when it reports third quarter earnings later this month. Assuming they are correct, "the shares would be trading close to 0.95x price to book, which it has only done two times as a public company," the report states.
Still, Houck remains somewhat cautious on Annaly. While he acknowledges it "is considered the bellweather in the Agency REIT sector" due to "having the strongest track record and expertise across a broad range of markets," he adds that "we remain concerned around [net interest margin] compression, higher prepayments and premium valuation to other agency REITs."
Houck has a "valuation range" of $15.50 to $16.50 for Annaly shares, which closed Wednesday at $15.99. Annaly shares have lost nearly 7% over the past month and are roughly flat for the year.-- Written by Dan Freed in New York. Follow @dan_freed
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV