Financials

Financials Buy List
CompanyBBI RankBBI BTBBI PT
Annaly Capital (NLY)2N/AN/A
JP Morgan (JPM)2N/AN/A
Wells Fargo (WFC)1N/AN/A
Banco Bradesco (BBD)

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  1. The Brew is TrueJuly 29, 2010 at 10:12 AM

    Annaly Capital Management (NLY) OUTPERFORM D. Harter
    CP: US$ 17.85 TP: US$ 19 CAP: US$ 9.7b 212 538 5983
    2Q'10 Earnings: Higher Premium Amortization, Lower Book Value; Lowering Estimates
     Annaly reported second quarter "core" EPS (fully diluted and after preferred dividend) of $0.57, $0.10 lower than our estimate and $0.05 lower than the consensus. Higher premium amortization expense accounted for $0.08 of the miss relative to our estimate with lower average earning assets accounting for the other $0.02. GAAP EPS were $(0.40) including $(1.07)/share unrealized loss on swaps and $0.07/share in securities gains. Book value ended the quarter at $16.89, 10% below our estimate.
     Estimates: We are reducing our 2010 through 2012 estimates to $2.44 (from $2.67), $2.60 (from $2.80), and $2.35 (from $2.45). A lower net interest spread assumption accounts for the lower estimates.
     Valuation: Annaly is currently trading at a 6% premium to second quarter book value (adjusted for the July capital raise) and yielding 15.2% on the current dividend.
     Reiterate Outperform: While the first half of 2010 has been more challenging from an earnings standpoint than we had anticipated we have visibility towards higher earnings in the third quarter as the premium amortization expense declines. This will allow Annaly to generate a mid-teens return on equity and dividend yield through 2012 while maintaining a historically low level of leverage. In the current low yield environment we believe that level of return warrants a premium to book value.
     Management will host a conference call Thursday (07/29) at 10 am.

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