Will Annaly's Focus on Agency MBS Support Its Growth Momentum?

Annaly Capital Management NLY is leaning into its core strength of agency mortgage-backed securities (MBS), with an aim to balance stability with steady returns. The company’s disciplined investment approach combines the security of Agency MBS, backed by government-sponsored enterprises, with selective exposure to higher-yielding, credit-sensitive assets.

With $75 billion in highly liquid agency MBS as of March 31, 2025, most carrying an actual or implied ‘AAA’ rating, Annaly is well-positioned to benefit from a favorable macro backdrop. 

The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. However, following the April tariff announcement, financial market volatility increased substantially, and Agency MBS spreads to benchmark rates widened. 

Management expects agency MBS to continue providing attractive returns. An improved supply and demand picture, decreasing financing costs, and a steeper yield curve are additional sector tailwinds. As the company focuses on maximizing risk-adjusted returns in a shifting rate environment, its MBS-led strategy can continue to reinforce long-term growth.

How NLY Competes With AGNC & STWD

AGNC Investment AGNC has maintained its focus on agency residential mortgage-backed securities (RMBS), a strategy that has positioned it as a strong player in this specialized market segment. AGNC Investment primarily focuses on leveraged investments in Agency RMBS, including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise guarantees the principal and interest payments for such investments.  Management believes that Agency RMBS offers investors a compelling return opportunity for AGNC Investment. Although the market is extremely competitive, the company's focus on agency RMBS positions it to profit from favorable trends.

Starwood Property Trust STWD is investing in both commercial mortgage-backed securities (CMBS) and commercial real estate debt investments, with a diversified portfolio of $1.02 billion as of March 31, 2025. Starwood Property Trust’s focus on CMBS and commercial real estate debt investments allows it to generate stable income streams while capitalizing on market opportunities. Despite this modest decrease in CMBS holdings in the first quarter of 2025, the company maintained stable income through principal repayments and new CMBS acquisitions.  However, Starwood Property Trust’s asset management expertise and ability to navigate the complexities of the CMBS market contribute to its strong market position and growth potential moving forward.

Annaly’s Price Performance, Valuations & Estimates

NLY shares have gained 13.9% in the past year compared with the industry’s growth of 6.8%.

Price Performance

From a valuation standpoint, Annaly trades at a forward price-to-earnings (P/E) ratio of 6.51X, below the industry’s average of 7.88X.

Price-to-Earnings F12M

The Zacks Consensus Estimate for NLY’s 2025 and 2026 earnings implies year-over-year rallies of 6.3% and 1.4%, respectively. The estimates for 2025 and 2026 have been unchanged over the past week.

Earnings Estimates

Annaly currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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