Annaly Capital Management currently trades at $21.15 per share and has shown little upside over the past six months, posting a small loss of 3.3%. The stock also fell short of the S&P 500’s 8.1% gain during that period.
Is there a buying opportunity in Annaly Capital Management, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Annaly Capital Management Will Underperform?
We're cautious about Annaly Capital Management. Here are three reasons you should be careful with NLY and a stock we'd rather own.
1. Declining Net Interest Income Reflects Weakness
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Annaly Capital Management’s net interest income has declined by 9.9% annually over the last five years, much worse than the broader banking industry. A silver lining is that lending outperformed its other business lines.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, we can see that Annaly Capital Management’s net interest margin averaged a poor breakeven, indicating the company has weak loan book economics.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Annaly Capital Management, its EPS and revenue declined by 5.7% and 22% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Annaly Capital Management’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Annaly Capital Management falls short of our quality standards. With its shares lagging the market recently, the stock trades at 1.1× forward P/B (or $21.15 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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