Annaly (NLY) is upgraded to Buy from Neutral at Compass Point following last night's buyback...

Annaly (NLY) is upgraded to Buy from Neutral at Compass Point following last night's buyback announcement, "a smart reallocation of capital ... (and) a floor for the share price." Noting likely high prepayment rates, Compass Point says the Fed's continued bid for MBS should keep book values - for Annaly and the rest of the sector - strong. Shares +2.2% premarket.

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Comments (11)
  • Regarded Solutions
    , contributor
    Comments (20531) | Send Message
    Good news, still need confirmation this will work.
    17 Oct 2012, 09:26 AM Reply Like
  • johnbbbb
    , contributor
    Comments (28) | Send Message
    Talk it down for a couple of weeks, panicked sellers sell, shorts short. Then upgrade it and the buyers buy again at lower prices. Where have I heard this before.
    17 Oct 2012, 10:33 AM Reply Like
  • Arriale
    , contributor
    Comment (1) | Send Message
    Hi RS,
    Thanks for all of your great work. How do you feel about TWO, PSEC... and any change in your opinion about AGNC, CYS?
    What will you be looking for with NLY re this move?
    All these stocks are up today--- what has changed?


    17 Oct 2012, 11:07 AM Reply Like
  • jpmist
    , contributor
    Comments (372) | Send Message
    Thinking out loud here: I've always bought the argument that with regular equities, stock buybacks were a bad use of corporate money. The money the corporation has should either be invested in the company or given back to the shareholders. However NLY isn't a normal equity.


    NLY is going to sell off $9B of it's portfolio to get the cash to buy $1.5B of it's own shares, effectively taking 10% of it's stock off the market. The shares will go on the asset side of it's balance sheet and be valued at it's purchase price. As Zvi Bar explains, since NLY doesn't have to pay dividends to shares held in treasury, that means the same level of earnings are distributed to 10% fewer shares. This means NLY will be able to hold it's dividend at current levels with lower earnings and as we've seen today, it gives NLY shareholders confidence to buy more shares, or at least not bail out at the rate they have in the last two weeks.


    Because this isn't a normal equity, buying back shares has some merit to it, but only when purchased shares are trading level or at a discount to the value of it's portfolio, as it is currently. Equity buy backs usually overpay for their shares. Hopefully NLY won't do that.


    This sort of reminds me of what the Fed and Treasury does when monetizing our public debt. It's a bit smoke and mirrors. The price of the mortgage bonds Anally holds becomes somewhat magnified when they not only hold the bonds, but also hold their own shares representing the same bonds on their balance sheet. It's way above my pay grade as to how that will shake out whenever MBS prices return to par and coupons spike up to 5% and 6% . . .
    17 Oct 2012, 11:58 AM Reply Like
  • dhmartin
    , contributor
    Comments (2) | Send Message
    Can good news for CIM be far behine ?
    17 Oct 2012, 12:46 PM Reply Like
  • durochka
    , contributor
    Comment (1) | Send Message
    I am a beginner. Never did this before.Should I buy NLY now? What does it mean high prepayment rates 2.2%?
    17 Oct 2012, 12:46 PM Reply Like
  • bill d
    , contributor
    Comments (1893) | Send Message
    Stock price was up 2.2% PRE-MARKET - not prepayment. Early trading before market opened.
    17 Oct 2012, 02:16 PM Reply Like
  • lislog
    , contributor
    Comment (1) | Send Message
    I am also a beginner and am trying to figure out what this means for me. I have had NLY for just under a year. Not selling, so can someone explain how this will effect me?
    17 Oct 2012, 01:53 PM Reply Like
  • 2old2care
    , contributor
    Comments (46) | Send Message
    lislog, click on 'Regarded Solutions' above and scroll thru the Articles related to NLY or Anally. Read articles and the comments for same. Lots of good info available there. Hopefully you will benefit.
    Best of Luck.
    17 Oct 2012, 02:39 PM Reply Like
  • rhauser
    , contributor
    Comments (2) | Send Message
    High pre-payments were deemed as being bad before - now they are deemed as being good? Welcome to the Twilight Zone - where bad becomes good and good becomes bad.
    17 Oct 2012, 02:40 PM Reply Like
  • Patrick Harden
    , contributor
    Comments (463) | Send Message
    In the current scenario, the book values of the mortgage REITs have risen significantly during the third quarter - CYS, for example, closed today at just 0.92x 9/30/12 book value. Annaly is the first (hopefully) of many mREITs to announce a buyback - every share repurchased below book value is accretive. That's where the prepayment activity comes in - faster prepayments do mean a loss of premium, which is bad, but the cash can be deployed to repurchase stock instead of low-yielding MBS. Alternatively, the mREITs can sell off highly appreciated agency MBS for capital gains and use the proceeds to repurchase stock. The time for mREIT expansion via equity raises is over - time to shrink the balance sheet.
    17 Oct 2012, 04:30 PM Reply Like
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