REIT Fears Overblown; Buy American Capital Agency (AGNC) on Weakness

November 14, 2012 10:56 AM EST
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Price: $19.54 --0%

Rating Summary:
    6 Buy, 12 Hold, 4 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 22 | Down: 16 | New: 12
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American Capital Agency (NASDAQ: AGNC ) shares were under pressure on Tuesday on a number of concerns, including regulatory and legislative risks, noted a report by analysts at Nomura. In the view of analysts, these concerns are largely overblown.

One of concerns raised by investors comes in the form of the proposed Menendez-Boxer Bill, which some say would further liberalize the HARP Program.

"While investors are justifiably concerned that passage of this bill would increase prepayment risk, our Washington sources suggest that the bill is unlikely to receive enough support to make it through the Senate. Even if it did, the watered-down version is unlikely to make it through the Republican-controlled House," said analyst Bill Carcache.

Press reports also suggest Edward DeMarco could be replaced as the head of the FHFA.

"If this happens (which our Washington sources suggest is unlikely), the consensus view is likely that principal forgiveness will be back on the table, and prepayment speeds will rise significantly," said Carache. "What many investors don’t realize is that principal forgiveness is a form of modification. Agency mortgage REITs have already experienced the prepayments associated with principal forgiveness."

Nomura Securities maintained a Buy rating on American Capital Agency (NASDAQ: AGNC) with a price target of $36.50.

For an analyst ratings summary and ratings history on American Capital Agency click here. For more ratings news on American Capital Agency click here.

Shares of American Capital Agency closed at $29.58 yesterday.

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