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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