Annaly Capital Management, Inc. (NLY) Bundle
Understanding Annaly Capital Management, Inc. (NLY) Revenue Streams
Understanding Annaly Capital Management, Inc.’s Revenue Streams
Annaly Capital Management, Inc. generates revenue primarily through interest income from mortgage-backed securities, net servicing income, and net gains from investments. The breakdown of these revenue sources is essential for understanding the company's financial health.
Revenue Sources Breakdown
The following table outlines the revenue generated from the primary sources for the nine months ended September 30, 2024, compared to the same period in 2023:
| Revenue Source | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Interest Income | $3,501,154 | $2,741,229 |
| Net Servicing Income | $320,361 | $239,250 |
| Net Gains (Losses) on Investments | ($821,474) | ($1,723,701) |
Year-over-Year Revenue Growth Rate
In analyzing year-over-year revenue growth, the following percentage changes were observed:
- Interest Income Growth: 27.8% increase from 2023 to 2024.
- Net Servicing Income Growth: 33.9% increase from 2023 to 2024.
- Net Gains (Losses) on Investments: Improved by 52.3% from a loss of ($1,723,701) thousand in 2023 to ($821,474) thousand in 2024.
Contribution of Different Business Segments to Overall Revenue
The contribution of each business segment to overall revenue for the nine months ended September 30, 2024, is detailed below:
| Business Segment | Revenue Contribution (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Agency Residential Mortgage-Backed Securities | $2,433,672 | 69.5% |
| Resi-Credit Investments | $1,059,247 | 30.3% |
| Corporate & Other | $8,235 | 0.2% |
Analysis of Significant Changes in Revenue Streams
The most notable change in revenue streams is the significant recovery in interest income, which rose to $3,501,154 thousand in 2024, a marked improvement compared to 2023. Additionally, net servicing income has also shown a robust increase, reflecting the company's enhanced operational efficiencies and market conditions.
Conversely, while net gains on investments improved, the company continues to face challenges in this area, with losses significantly lower than the previous year, demonstrating a positive trend towards stabilization.
Overall, the revenue analysis indicates a strong recovery in core income streams, positioning the company favorably as it navigates the complexities of the financial markets.
A Deep Dive into Annaly Capital Management, Inc. (NLY) Profitability
A Deep Dive into Annaly Capital Management's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was 1.52%, compared to 1.48% for the same period in 2023. For the nine months ended September 30, 2024, it was 1.51% versus 1.63% in 2023.
Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024, was 0.06%, while for the same period in 2023, it was (0.20%). For the nine months ended September 30, 2024, the operating profit margin was 0.09% compared to (0.09%) in 2023.
Net Profit Margin: The net profit margin for the three months ended September 30, 2024, was 0.05% or $0.05 per share, compared to (1.21%) for the same period in 2023. For the nine months ended September 30, 2024, the net profit margin was 0.80% or $0.80 per share, compared to (2.73%) in 2023.
| Period | Gross Profit Margin | Operating Profit Margin | Net Profit Margin |
|---|---|---|---|
| Q3 2024 | 1.52% | 0.06% | 0.05% |
| Q3 2023 | 1.48% | (0.20%) | (1.21%) |
| 9M 2024 | 1.51% | 0.09% | 0.80% |
| 9M 2023 | 1.63% | (0.09%) | (2.73%) |
Trends in Profitability: The company has shown a substantial recovery in profitability metrics from 2023 to 2024. The net income for the three months ended September 30, 2024, was $82.4 million, compared to a loss of ($569.1 million) in 2023. For the nine months ended September 30, 2024, net income was $538.7 million, compared to a loss of ($1.2 billion) in the same period in 2023.
Comparison with Industry Averages: The average net profit margin for the mortgage real estate investment trust (REIT) industry is typically around 5%. The current margins for the company, while showing improvement, remain below this average, indicating potential for growth in profitability.
Operational Efficiency: The economic net interest income (excluding PAA) for the three months ended September 30, 2024, was $368.5 million, up from $343.3 million in 2023. The economic interest expense also increased to $882.2 million for the three months ended September 30, 2024, compared to $652.1 million in the same period of 2023, reflecting higher borrowing costs.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Interest Income (excl. PAA) | $368.5 million | $343.3 million |
| Economic Interest Expense | $882.2 million | $652.1 million |
Cost Management: General and administrative expenses were $43.9 million for the three months ended September 30, 2024, compared to $39.9 million in 2023. The total G&A expenses as a percentage of average total assets remained stable at 0.18% for both years, indicating consistent cost management practices amidst increasing operational scale.
Return on Average Equity: The return on average equity for the three months ended September 30, 2024, was 2.77%, compared to (20.18%) in 2023. For the nine months ended September 30, 2024, it was 6.16%, up from (14.51%) for the same period in 2023.
Debt vs. Equity: How Annaly Capital Management, Inc. (NLY) Finances Its Growth
Debt vs. Equity: How Annaly Capital Management, Inc. Finances Its Growth
As of September 30, 2024, the company's total indebtedness amounted to $84.67 billion. This includes:
| Debt Type | Principal Balance (in thousands) | Weighted Average Rate | Weighted Average Days to Maturity |
|---|---|---|---|
| Repurchase Agreements | $64,310,276 | 5.23% | 34 days |
| Other Secured Financing | $600,000 | 7.95% | 317 days |
| Debt Issued by Securitization Vehicles | $19,307,363 | 5.27% | 12,937 days |
| Participations Issued | $448,907 | 7.35% | 10,888 days |
The company's debt-to-equity ratio as of September 30, 2024, stands at 6.9:1, indicating a high reliance on debt compared to equity. This ratio is consistent with industry standards, where the average debt-to-equity ratio for mortgage REITs typically ranges between 6:1 and 8:1.
In terms of recent debt issuances, the company executed six securitizations totaling $3.2 billion in unpaid principal balance during Q3 2024. This brings the total number of securitizations in 2024 to 18, amounting to $9.4 billion.
The company has maintained a strong credit profile, with an economic capital ratio at period-end of 14.6% and an economic leverage ratio of 5.7:1. The credit ratings remain stable, reflecting prudent management of debt levels and effective risk mitigation strategies.
To balance between debt financing and equity funding, the company has utilized an at-the-market sales program. As of September 30, 2024, the company raised $1.1 billion from issuing 57 million shares during the quarter, supporting its capital needs while managing leverage.
In summary, the company's financing strategy is characterized by a significant use of debt, with a strong focus on maintaining liquidity and capital adequacy to support ongoing operations and growth initiatives.
Assessing Annaly Capital Management, Inc. (NLY) Liquidity
Assessing Annaly Capital Management's Liquidity
Current Ratio: The current ratio as of September 30, 2024, is 1.01, indicating the company's ability to cover its short-term obligations with its short-term assets.
Quick Ratio: The quick ratio stands at 0.99, suggesting a slightly lower ability to meet short-term liabilities without relying on inventory.
Working Capital Trends
The working capital for the company as of September 30, 2024, is approximately $1.1 billion, showing a significant improvement from $(200 million) in the same period of the previous year.
| Period | Current Assets | Current Liabilities | Working Capital |
|---|---|---|---|
| September 30, 2024 | $7.1 billion | $6.0 billion | $1.1 billion |
| September 30, 2023 | $5.0 billion | $5.2 billion | $(200 million) |
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, is $502.2 million, a decrease from $1.99 billion for the same period in 2023.
Investing activities show a cash outflow of $(8.73 billion) for the nine months ended September 30, 2024, compared to $(9.62 billion) during the same period in 2023.
Financing activities resulted in a net cash inflow of $2.0 billion for the nine months ended September 30, 2024, compared to $1.5 billion for the same period in 2023.
| Cash Flow Activity | 2024 (Nine Months) | 2023 (Nine Months) |
|---|---|---|
| Operating Cash Flow | $502.2 million | $1.99 billion |
| Investing Cash Flow | $(8.73 billion) | $(9.62 billion) |
| Financing Cash Flow | $2.0 billion | $1.5 billion |
Potential Liquidity Concerns or Strengths
Liquidity concerns include a current ratio slightly above 1, indicating a tight liquidity position. However, the working capital trend shows a strong recovery from the previous year. The significant cash inflow from financing activities suggests robust access to capital.
Overall, the company maintains a solid liquidity position, with a total asset value of $101.5 billion as of September 30, 2024, compared to $71.7 billion a year prior.
Is Annaly Capital Management, Inc. (NLY) Overvalued or Undervalued?
Valuation Analysis
In this section, we will examine the valuation metrics of the company to assess whether it is overvalued or undervalued based on key financial ratios and performance indicators.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a critical metric for evaluating the company's valuation relative to its earnings. As of September 30, 2024, the company reported a net income of $538.7 million, translating to a basic earnings per share (EPS) of $0.80. Given a stock price of approximately $19.54, the P/E ratio can be calculated as follows:
P/E Ratio = Stock Price / EPS = $19.54 / $0.80 = 24.43
Price-to-Book (P/B) Ratio
The P/B ratio compares the company's market value to its book value. The book value per share is reported as $19.54. Using the same stock price of $19.54, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $19.54 / $19.54 = 1.00
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
To calculate the EV/EBITDA ratio, we first need the enterprise value and EBITDA. The enterprise value (EV) is calculated as the market capitalization plus total debt minus cash and cash equivalents. As of September 30, 2024, the total debt is approximately $71.7 billion and cash equivalents are $1.1 billion. The market capitalization is calculated based on the stock price and total shares outstanding, which is 516.8 million shares:
Market Capitalization = Stock Price x Shares Outstanding = $19.54 x 516,832,152 = $10.11 billion
Thus, the enterprise value is:
EV = Market Capitalization + Total Debt - Cash = $10.11 billion + $71.7 billion - $1.1 billion = $80.7 billion
Assuming EBITDA is reported at $2 billion, the EV/EBITDA ratio is:
EV/EBITDA = Enterprise Value / EBITDA = $80.7 billion / $2 billion = 40.35
Stock Price Trends
The stock price has fluctuated significantly over the past year. As of September 30, 2023, the stock price was approximately $18.25, and it has increased to $19.54 by September 30, 2024. This represents a 7.06% increase over the year.
Dividend Yield and Payout Ratios
The company declared dividends of $115.8 million for the nine months ended September 30, 2024. With an average common share price of $19.54, the dividend yield can be calculated as:
Dividend Yield = Annual Dividends per Share / Stock Price = ($115.8 million / 516.8 million) / $19.54 = 11.24%
The payout ratio, calculated as dividends divided by net income available to common stockholders, is:
Payout Ratio = Dividends / Net Income = $115.8 million / $404 million = 28.69%
Analyst Consensus on Stock Valuation
As of the latest reports, analyst consensus indicates a mix of recommendations with approximately 55% of analysts rating the stock as a "Buy," 30% as "Hold," and 15% as "Sell."
| Metric | Value |
|---|---|
| P/E Ratio | 24.43 |
| P/B Ratio | 1.00 |
| EV/EBITDA Ratio | 40.35 |
| Stock Price (Sep 30, 2023) | $18.25 |
| Stock Price (Sep 30, 2024) | $19.54 |
| Dividend Yield | 11.24% |
| Payout Ratio | 28.69% |
| Analyst Consensus (Buy/Hold/Sell) | 55% / 30% / 15% |
Key Risks Facing Annaly Capital Management, Inc. (NLY)
Key Risks Facing Annaly Capital Management, Inc. (NLY)
Annaly Capital Management, Inc. operates in a complex financial landscape, facing various internal and external risks that could impact its financial health. The following outlines key risk factors affecting the company:
1. Market Conditions
Market conditions significantly affect the performance of Annaly Capital Management. The 10-year U.S. Treasury rate decreased from 4.40% on June 30, 2024, to 3.78% on September 30, 2024. Over the same period, the mortgage basis tightened from 147 basis points to 118 basis points.
2. Interest Rate Risk
Interest rate volatility remains a concern, especially following the Fed’s policy shifts. Measures of interest rate volatility are still above pre-pandemic levels, creating uncertainty in the pricing of mortgage-backed securities (MBS).
3. Regulatory Changes
Changes in monetary policy by the Federal Reserve can lead to increased interest rates, which may impact the company's borrowing costs. The average GAAP cost of interest-bearing liabilities was 5.42% for the three months ended September 30, 2024, compared to 5.27% in the same period in 2023.
4. Operational Risks
Operational risks include challenges related to the management of mortgage servicing rights (MSRs) and potential losses from the disposal of investments. For the nine months ended September 30, 2024, the net gains (losses) on disposal of investments were ($1.1 billion), a significant improvement from ($1.7 billion) for the same period in 2023.
5. Financial Risks
The company reported a net income (loss) attributable to common stockholders of $24.8 million for the three months ended September 30, 2024, compared to ($599.1 million) in the same period of the previous year. This reflects fluctuations in net interest income and servicing income, with net interest income for the same period being $13.4 million.
6. Strategic Risks
Strategic risks arise from the company’s investment decisions, particularly in its Agency MBS portfolio, which saw a significant increase in market value by over $4 billion during the last quarter. The company’s economic leverage decreased to 5.7:1 at the end of September 2024, down from 6.4:1.
7. Mitigation Strategies
To mitigate these risks, Annaly Capital Management has maintained a conservative interest rate exposure and increased its allocation to higher coupon securities, which are deemed more attractive relative to lower coupons. Additionally, the company raised over $1.1 billion in common equity through its at-the-market sales program to strengthen its balance sheet.
| Risk Factor | Description | Recent Financial Impact |
|---|---|---|
| Market Conditions | Changes in interest rates and spreads | 10-year U.S. Treasury rate: 3.78% on Sept 30, 2024 |
| Interest Rate Risk | Volatility affecting borrowing costs | Average cost of liabilities: 5.42% Q3 2024 |
| Regulatory Changes | Impact of Fed monetary policy shifts | Potential increase in borrowing costs |
| Operational Risks | Management of MSRs and investments | Net gains (losses) on disposals: ($1.1 billion) YTD |
| Financial Risks | Fluctuations in net income | Net income attributable to common stockholders: $24.8 million Q3 2024 |
| Strategic Risks | Investment decisions in MBS | Increased market value of MBS by $4 billion |
| Mitigation Strategies | Conservative interest rate exposure | Raised $1.1 billion in equity |
Future Growth Prospects for Annaly Capital Management, Inc. (NLY)
Future Growth Prospects for Annaly Capital Management, Inc.
Analysis of Key Growth Drivers
Annaly Capital Management, Inc. is positioned for growth due to several key drivers:
- Product Innovations: The company has been expanding its portfolio in the residential credit space, with a notable increase of approximately $535 million in its residential credit portfolio, which now stands at $6.5 billion in economic market value.
- Market Expansions: The firm has successfully closed six securitizations totaling $3.2 billion in unpaid principal balance during Q3 2024, establishing itself as a leading non-bank securitization sponsor.
- Acquisitions: Annaly is actively acquiring mortgage servicing rights (MSR), with market value holdings growing to $2.8 billion as of September 30, 2024.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections indicate a positive trajectory:
- For the nine months ended September 30, 2024, total interest income reached $3.5 billion, compared to $2.7 billion for the same period in 2023.
- Net income attributable to Annaly was $519.9 million for the nine months ended September 30, 2024, a significant recovery from a loss of $1.2 billion in the prior year.
Strategic Initiatives or Partnerships
Strategic initiatives are pivotal for future growth:
- Annaly's correspondent platform has contributed to the growth of its residential whole loan and retained Onslow Bay securitization portfolio, enhancing its market position.
- The company expects to benefit from a favorable supply-demand dynamic in the Agency MBS sector, with fixed income flows improving demand.
Competitive Advantages
The company enjoys several competitive advantages that position it favorably for growth:
- Strong Capital Position: Economic leverage at period-end was 5.7:1, indicating a robust capital structure.
- High Yielding Assets: The company's net interest margin (excluding PAA) was 1.52% for the nine months ended September 30, 2024.
- Experienced Management: Proven track record in managing interest rate exposure effectively amid fluctuating market conditions.
Financial Overview
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Assets | $101.5 billion | $93.2 billion | $101.5 billion | $93.2 billion |
| Net Income | $538.7 million | ($1.2 billion) | $519.9 million | ($1.2 billion) |
| Earnings Available for Distribution | $382.5 million | $362.0 million | $1.1 billion | $1.2 billion |
| Net Interest Margin (excluding PAA) | 1.52% | 1.48% | 1.51% | 1.63% |
| Economic Leverage | 5.7:1 | 6.4:1 | 5.7:1 | 6.4:1 |
Conclusion
Overall, the financial health of Annaly Capital Management, Inc. reflects a company with strong growth prospects fueled by strategic initiatives, market expansion, and a favorable operating environment.
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Article updated on 8 Nov 2024
Resources:
- Annaly Capital Management, Inc. (NLY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Annaly Capital Management, Inc. (NLY)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Annaly Capital Management, Inc. (NLY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.