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Raw Data: The Future Price Of AGNC

|Includes:AGNC Investment Corp. (AGNC)

Thanks for clicking on this. Here is my rationale:

Each quarterly stock issuance raises capital. The amount is based on the number of shares and the offering price.

The capital can be applied at a given leverage rate, as indicated in the financials for AGNC, to expand the portfolio. The company can then use the portfolio at the interest rate spread, which last quarter was 2.31% to derive the income.

It can and will distribute the income in the form of dividends at a known rate.

Leverage:

If you calculate this on the basis of the table on page 56 of the AGNC annual report and calculate the amount of funds raised during 2011 and compare that to the change in portfolio value, the result is reasonably close to the average 7.86:1 leverage value that is stated in AGNC's investor fact sheet. Using the leverage to compute the amount of incremental portfolio that AGNC can add with each incremental share issuance, we can then use the interest rate spread data to compute the amount of income that can be derived from the portfolio:

Quarter Leverage Interest Spread %
2011-1 7.9 2.58
2011-2 7.6 2.46
2011-3 7.9 2.14
2011-4 7.6 1.9
2012-1 8.2 2.31
Average 7.84  

Income derived from the increased portfolio:

We have to make a couple of adjustments. If we multiply the portfolio value by the interest rate spread, we get a number that is slightly different from the actual net interest income, and there is a similar adjustment when translating from net income to actual dividend payout:

Quarter Actual Interest Income Theo Int Income Efficiency
2011-1 164 181.8384 0.9019
2011-2 201 245.385 0.8191
2011-3 232 224.165 1.0350
2011-4 263 260.3 1.0104
2012-1 406 465.465 0.8722
    Average Efficiency 0.9277
Quarter Div Payout Interest Income ($M) Ratio
2011-1 $ 126,000,000 $ 164,000,000 0.7683
2011-2 $ 182,000,000 $ 201,000,000 0.9055
2011-3 $ 252,000,000 $ 232,000,000 1.0862
2011-4 $ 294,000,000 $ 263,000,000 1.1179
2012-1 $ 301,250,000 $ 406,000,000 0.7420
    Average Payout Ratio 0.9240

Here is the spreadsheet model I've used:

These are the independent variables:

Share Growth/Quarter 40,000,000
Effective Leverage 7.84
Spread Stability 1
Income Efficiency 0.93
Dividend Payout 0.96
Yield 0.18
Yield Stability 1

Income efficiency is the ratio of "theoretical net income", which is the portfolio value times the interest rate spread, and "actual net income" from the financials. The reason there is a difference is the interest expense and other operating expenses.

The dividend payout ratio is relatively straightforward. It's the average percentage that is paid out in dividends.

Interest Stability: I built the model to test what would happen in scenarios of increasing or decreasing interest rate spread. 1.0 is no change, 1.02 is a 2% increase in spread, .98 is a 2% decrease, for example.

Yield Stability is the same thing: 1.0 is steady yield, using the initial assumption of 18%, 1.02 would be a 2% increase, .98 would be a 2% decrease. A decrease in yield is not all bad, it represents an increase in the stock price.

Here's the first half of the data table:

Quarter Common Shares Interest Spread Portfolio Value Interest Income
2011-1 90,000,000 2.58 28,192,000,000 164,000,000
2011-2 130,000,000 2.46 39,900,000,000 201,000,000
2011-3 180,000,000 2.14 41,900,000,000 232,000,000
2011-4 210,000,000 1.9 54,800,000,000 263,000,000
2012-1 241,000,000 2.31 80,600,000,000 406,000,000
2012-2 281,000,000 2.31 89,311,111,113 479,667,650
2012-3 321,000,000 2.31 100,731,184,189 541,002,007
2012-4 361,000,000 2.31 112,006,497,472 601,558,896
2013-1 401,000,000 2.31 123,154,722,469 661,433,226
2013-2 441,000,000 2.31 134,189,825,888 720,700,007
2013-3 481,000,000 2.31 145,123,111,926 779,419,953
2013-4 521,000,000 2.31 155,963,909,038 837,643,164
2014-1 561,000,000 2.31 166,720,040,431 895,411,657

and here is the second half:

Div Payout Div/Share Actual Price Model Price  
126,000,000 1.4 29.2 31.11  
182,000,000 1.4 29.74 31.11  
252,000,000 1.4 29.71 31.11  
294,000,000 1.4 28.06 31.11  
301,250,000 1.25 30.07 27.78  
460,480,944 1.64 35 36.42  
519,361,927 1.62   35.95 0.18
577,496,540 1.60   35.55 0.18
634,975,897 1.58   35.19 0.18
691,872,007 1.57   34.86 0.18
748,243,155 1.56   34.57 0.18
804,137,438 1.54   34.30 0.18
859,595,191 1.53   34.05 0.18
Dividends 11.00      

The model price is the output I used for the graphs in the main article.

Here is Scenario 1, the base case;

1. Current course, Stable spread    
Share Increases/Quarter 0    
Effective Leverage 7.84    
Spread Stability 1    
Income Efficiency 0.93    
Dividend Payout 0.96    
Yield 0.18    
Spread Base Level 1    
       
       
Quarter Actual Price With Offerings Without Offerings
2011-1 29.2 31.11 31.11
2011-2 29.74 31.11 31.11
2011-3 29.71 31.11 31.11
2011-4 28.06 31.11 31.11
2012-1 30.07 27.78 27.78
2012-2 35 36.42 38.32
2012-3   35.95 38.32
2012-4   35.55 38.32
2013-1   35.19 38.32
2013-2   34.86 38.32
2013-3   34.57 38.32
2013-4   34.30 38.32
2014-1   34.05 38.32
       

Scenario 2: Decreasing interest rate spread

 

 

Share Growth/Quarter 0    
Effective Leverage 7.84    
Spread Stability 0.98    
Income Efficiency 0.93    
Dividend Payout 0.96    
Yield 0.18    
Yield Decay 1    
       
Quarter Actual Price With Offerings Without Offerings
2011-1 29.2 31.11 31.11
2011-2 29.74 31.11 31.11
2011-3 29.71 31.11 31.11
2011-4 28.06 31.11 31.11
2012-1 30.07 27.78 27.78
2012-2 35 35.69 37.55
2012-3   34.45 36.80
2012-4   33.25 36.07
2013-1   32.08 35.34
2013-2   30.95 34.64
2013-3   29.86 33.94
2013-4   28.80 33.27
2014-1   27.78 32.60

Scenario 3:

 

 

3. Interest Rate Spread Slow Increase    
       
Share Growth/Quarter 0    
Effective Leverage 7.84    
Spread Stability 1.05    
Income Efficiency 0.93    
Dividend Payout 0.96    
Yield 0.18    
yield decay 1    
       
       
Quarter Actual Price With Offerings Without Offerings
2011-1 29.2 31.11 31.11
2011-2 29.74 31.11 31.11
2011-3 29.71 31.11 31.11
2011-4 28.06 31.11 31.11
2012-1 30.07 27.78 27.78
2012-2 35 38.24 40.23
2012-3   39.86 42.25
2012-4   41.81 44.36
2013-1   44.08 46.58
2013-2   46.67 48.91
2013-3   49.60 51.35
2013-4   52.89 53.92
2014-1   56.58 56.61

Scenario 4: Increased Leverage

 

 

Stable Rates/Higher Leverage    
       
       
Share Growth/Quarter 0    
Effective Leverage 7.84    
Spread Stability 1    
Income Efficiency 0.93    
Dividend Payout 0.96    
Yield 0.18    
Yield Stability 0.98    
       
Quarter Actual Price With Offerings Without Offerings
2011-1 29.2 31.11 31.11
2011-2 29.74 31.11 31.11
2011-3 29.71 31.11 31.11
2011-4 28.06 31.11 31.11
2012-1 30.07 27.78 27.78
2012-2 35 36.42 38.32
2012-3   37.44 39.90
2012-4   37.93 40.71
2013-1   38.53 41.54
2013-2   39.22 42.39
2013-3   40.00 43.26
2013-4   40.86 44.14
2014-1   41.80 45.04

5. Decaying Yield (stock price steadily going up)

  AGNC Price Model Enter Values Here
  Share Growth/Quarter 40000000  
  Effective Leverage 8  
  Spread Stability 0.98  
  Income Efficiency 0.93  
  Dividend Payout 0.96  
  Yield 0.18  
  Yield Stability 0.97  
       
Quarter Actual Price Issuance No Issuance
2011-1 29.2 31.11111111 31.11111111
2011-2 29.74 31.11111111 31.11111111
2011-3 29.71 31.11111111 31.11111111
2011-4 28.06 31.11111111 31.11111111
2012-1 30.07 27.77777778 27.77777778
2012-2 35 35.75876639 37.55240286
2012-3   36.77264505 39.1129289
2012-4   36.88665826 39.51615497
2013-1   37.0634053 39.92353801
2013-2   37.29264583 40.33512087
2013-3   37.56694204 40.75094686
2013-4   37.88076038 41.17105972
2014-1   38.22990503

41.59550363

Do with this information what you will.

Disclosure: I am long AGNC.

Stocks: AGNC