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Why American Capital Agency (AGNC) Is Up Today

NEW YORK (TheStreet) -- American Capital Agency  (AGNC) was rising 1.52% to $21.38 on Tuesday morning after the mortgage real estate investment trust announced fourth-quarter results that beat analysts' expectations.

The company reported net spread income of 75 cents per share, which surpassed analysts' estimates of 63 cents and marked an increase over the 61 cents in the third quarter. Net interest income for the quarter was $422 million, which surpassed analysts expectations of $316 million and beat the third quarter results of $413 million. The company reported a GAAP fourth-quarter net loss of 28 cents a share or $104 million.

"By the end of the fourth quarter, market conditions were decidedly more stable and many of the idiosyncratic risks that we faced earlier in the year had abated," said President and Chief Investment Officer Gary Kain in the company's statement. "In addition to reduced volatility, the combination of higher yields on MBS, a steeper yield curve and benign prepayments make the current return landscape more appealing. As such, we were considerably more comfortable positioning the portfolio with a larger duration gap as we moved forward toward a more normal balance between risk and return. Given the decline in interest rates and the strong performance of agency MBS in January, we have already seen a meaningful increase in our book value."

TheStreet Ratings team rates AMERICAN CAPITAL AGENCY CORP as a "hold" with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate AMERICAN CAPITAL AGENCY CORP (AGNC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, unimpressive growth in net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to the other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, AMERICAN CAPITAL AGENCY CORP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
  • AGNC, with its very weak revenue results, has greatly underperformed against the industry average of 9.7%. Since the same quarter one year prior, revenues plummeted by 124.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 915.1% when compared to the same quarter one year ago, falling from $86.00 million to -$701.00 million.
  • Net operating cash flow has decreased to $472.00 million or 20.93% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: AGNC Ratings Report
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