There has been a lot of controversy surrounding Annaly Capital Management, Inc. (NLY) lately, especially on this site. This brings up one simple matter; should we buy, sell, or hold this stock? I have taken the time these past couple of days to see what the buzz is all about and whether we should get in, get out, or sit tight. There is no doubt this stock had a rock solid run all the way up to $18 and is reaching a price point where an investors need to make a decision. Is it still a good choice or is the stock rising on momentum that could turn around just as quickly?
| Index | - | P/E | 34.22 | EPS | 0.50 | Insider Own | 0.51% | Shs Outstand | 974.61M | Perf Week | 1.00% |
| Market Cap | 16.68B | Forward P/E | 8.35 | EPS next Y | 2.05 | Insider Trans | 8.51% | Shs Float | 968.66M | Perf Month | 2.46% |
| Income | 529.85M | PEG | 11.41 | EPS next Q | 0.49 | Inst Own | 42.11% | Short Float | 3.49% | Perf Quarter | 9.05% |
| Sales | 3.59B | P/S | 4.64 | EPS this Y | -81.61% | Inst Trans | -5.51% | Short Ratio | 3.48 | Perf Half Y | 8.15% |
| Book/sh | 16.36 | P/B | 1.05 | EPS next Y | 3.54% | ROA | 0.50% | Target Price | 16.94 | Perf Year | 5.36% |
| Cash/sh | 0.96 | P/C | 17.88 | EPS next 5Y | 3.00% | ROE | 3.73% | 52W Range | 12.66 - 17.19 | Perf YTD | 10.96% |
| Dividend | 2.20 | P/FCF | 62.11 | EPS past 5Y | -3.28% | ROI | 3.03% | 52W High | -0.47% | Beta | 0.28 |
| Dividend % | 12.86% | Quick Ratio | - | Sales past 5Y | 23.98% | Gross Margin | 86.12% | 52W Low | 35.15% | ATR | 0.17 |
| Employees | 147 | Current Ratio | - | Sales Q/Q | 1.29% | Oper. Margin | 16.94% | RSI (14) | 65.28 | Volatility | 0.77% 0.98% |
| Optionable | Yes | Debt/Eq | 5.84 | EPS Q/Q | 0.74% | Profit Margin | 15.22% | Rel Volume | 1.15 | Prev Close | 17.12 |
| Shortable | Yes | LT Debt/Eq | 0.03 | Earnings | Feb 21 | Payout | 416.90% | Avg Volume | 9.71M | Price | 17.11 |
| Recom | 2.70 | SMA20 | 2.01% | SMA50 | 3.66% | SMA200 | 8.15% | Volume | 11,173,574 | Change | -0.06% |
The Competition:
Price | Market Cap | Revenue | Net Income | |
NLY | 17.12 | 16.69B | 861.73M | 529.85M |
CMO | 13.97 | 1.31B | 187.18M | 149.60M |
IMH | 2.01 | 15.74M | 68.17M | 3.42M |
RWT | 12.12 | 958.15M | 100.25M | 35.95M |
Industry | N/A | 766.44M | 79.56M | N/A |
CMO - Capstead Mortgage Corp.
IMH - Impac Mortgage Holdings Inc.
RWT - Redwood Trust Inc.
Industry - REIT, Diversified
The Good
Of the 42 firms within the Specialty Financials Industry, Annaly is among the 21 companies that pay a dividend. The stock's dividend yield is currently 12.8% or $0.55 quarterly. This stock has a history of above average dividends with above average payout ratio. I believe this is a good sign that the company is financially stable, especially since its Long Term Debt / Equity ratio is 0.03. Also, NLY took advantage of improved capital markets to complete three equity offerings in 2011: a $1.3 billion offering in early January, a $1.3 billion offering in February, and a $2.1 billion offering in July. Each of these offerings was made at a share price that was a premium to book value. Following each of these offerings the company has been quick to use this capital to its advantage, and I expect this to have a positive impact on earnings in the coming quarters given the spreads on new investments should be higher than the recent portfolio average.
The Bad
Chairman, President and Chief Executive Officer, Michael A.J. Farrell has been battling cancer, and anytime there is a shift in management the stock price is shaky. Also, some of its executives are being investigated for excessive bonuses and breaches of their responsibilities by paying certain top officials excessive compensation. This company also looks overvalued based on PEG of 11.4 and dismal earnings for the past five years. The company's net margin is at its five-year low and based on forward PEG, NLY currently trades at an 88% premium to its Specialty Financials Industry peers.
Conclusion
I believe this stock was poised for greatness at one point, but do believe it is time to sell. I feel that its time is finally up and the momentum will turn around. Now this is not to say I do not think the future may have something else in store, but at this point I would recommend getting out while you are still ahead.
Annaly Capital Management, Inc. owns, manages, and finances a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations (CMOs), Agency callable debentures, and other securities representing interests in or obligations backed by pools of mortgage loans. NLY finances its purchases of mortgage-backed securities with the proceeds from equity offerings and borrowings under repurchase agreements with interest rates that adjust based on changes in the short-term benchmark. At December 31, 2011, about 90% of the company's investments were fixed rate pass-through certificates, approximately 9% were adjustable rate pass-through certificates, and 1% were LIBOR CMO floaters. At that date, 41% of the trust's portfolio was hedged with interest rate swaps, which is consistent with the historical composition of its portfolio. Annaly has a market cap of $16.69B and an enterprise value of $ 107.61B.
The Numbers:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
