Annaly Capital Q3 earnings on deck: What to expect

Annaly Capital Management (NYSE:NLY [https://seekingalpha.com/symbol/NLY]) is set to report Q3 results on Wednesday, October 22, after market close, as U.S. rates continue to shift.

Interest rates in the U.S. are starting to fall after a period of sharp increases, and the yield curve, where short-term rates had been higher than long-term rates, is beginning to return to normal.

Wall Street expects [https://seekingalpha.com/symbol/NLY/earnings/estimates?period=quarterly] earnings of $0.72 per share on revenue of $501.69M, representing a 9.1% year-over-year increase.

Traditionally, fixed‑rate mortgage‑backed securities [MBS] lose value when long‑term yields rise and profit margins tighten. But with the yield curve beginning to normalize and funding costs easing, these investments are starting to recover. Many mortgage bonds still carry higher interest rates, while the cost to borrow has fallen.

The improving backdrop comes amid rising expectations for further Fed easing. Lower short-term rates would ease funding costs for mortgage REITs and help steepen the yield curve, improving spreads on agency MBS, favoring companies like NLY.

An analyst said, the trend is creating renewed opportunities for mortgage REITs, adding [https://seekingalpha.com/article/4829441-housing-boom-about-to-begin-lock-in-13-percent-with-annaly-capital], "NLY is entering a boom cycle from rate cuts and climbing MBS values."

J.P. Morgan noted that Annaly is working to grow its business by adding more lending partners and making it faster and easier for them to do business.

The company bought a package of mortgage servicing rights from PennyMac, giving it the right to manage those loans. These moves are expected to help Annaly make more money and give it more flexibility to move funds between different parts of its business. The bank said this, along with the company’s size and variety of investments, supports its $22 price target.

Over the last two years, NLY has beaten EPS estimates [https://seekingalpha.com/symbol/NLY/earnings/eps-surprise-summary] 63% of the time and has beaten revenue estimates 0% of the time.

In the last three months, EPS estimates have seen six upward revisions [https://seekingalpha.com/symbol/NLY/earnings/revisions], compared to two downward estimates, while revenue estimates have been revised upwards three times versus no downward moves.

NLY has slipped [https://seekingalpha.com/symbol/NLY/charting?interval=1M] 0.5% in the past month, but remain up 14.97% year-to-date [https://seekingalpha.com/symbol/NLY/charting?interval=YTD].

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