Should You Consider Buying Annaly Stock Post Its Q4 Earnings?

Core Viewpoint - Annaly Capital Management (NLY) reported its fourth-quarter 2024 results, with adjusted earnings surpassing estimates but revenue falling short, highlighting its resilience amid economic uncertainties [1][2][6]. Financial Performance - Adjusted earnings available for distribution (EAD) per average share were 72 cents, up from 68 cents year-over-year [6]. - Net interest income (NII) reached $187.3 million, a significant recovery from a negative NII of$53.6 million in the prior-year quarter [6]. - As of December 31, 2024, the book value per share was $19.15, down 1.5$19.44 a year earlier [7]. Investment Strategy & Portfolio Diversification - Annaly's investment portfolio totaled 80.9 billion, including residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS), aimed at reducing volatility and interest rate sensitivity [9][10]. - The company exited its Middle Market Lending portfolio and commercial real estate business to focus on its core housing finance strategy [10]. - The inclusion of MSRs is significant as they tend to increase in value with rising interest rates, providing a hedge against declines in agency MBS values [11]. Liquidity Position & Capital Distribution - Annaly maintained a strong liquidity position with an unencumbered asset portfolio of 5.8 billion, enhancing its ability to respond to market conditions [12][13]. - The company boasts a dividend yield of 13.06%, higher than the industry average of 11.39%, with a payout ratio of 98% [13]. Market Outlook - The outlook for agency MBS is improving, with management optimistic about favorable dynamics in 2025, including attractive returns and a better supply-demand balance [16][17]. - The Federal Reserve's interest rate cuts in 2024 positively impacted NII, which rose to $247.8 million from a negative NII of$111.4 million in 2023 [19]. - Mortgage rates are expected to decline gradually, which may enhance purchase originations and refinancing activities, benefiting Annaly's book value [20][22]. Valuation - Annaly is currently trading at a premium with a forward price-to-tangible book (P/TB) multiple of 0.93X, compared to the industry average of 0.88X [23]. - Despite premium valuation, the company's strong growth potential and favorable outlook make it an attractive investment for long-term returns [26][28].