Jefferies Cuts Target on Annaly (NLY) to $16.50; Sees HARP2 Having 'Minimal' Impact on Market
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Price: $23.16 -0.56%
Rating Summary:
14 Buy, 10 Hold, 3 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
14 Buy, 10 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Jefferies cut its price target on Annaly Capital Management (NYSE: NLY) by $1, from $17.50 to $16.50, while maintaining a Hold rating on the stock.
Annaly reported third-quarter adjusted earnings of 65 cents per share, which was in-line with consensus views, but below Jefferies expectation for 72 cents per share.
Jefferies noted an increase in premium amortization from $126 million in the second-quarter, to $201 million this last quarter, a 60 percent jump, came from higher prepayment rates.
Further, Jefferies said, "over the past three quarters, the weighted average pay rate declined from 2.92 percent in 1Q11 to 2.79 percent in 2Q11 and to 2.57% in 3Q11. We believe the high pay rate on their vintage swap likely resulted in management's decision to also use I/O strip securities as a book value hedge since increasing the swap book would negatively impact net asset spreads."
Annaly also ended the quarter with about $3.5 billion in cash, which Jefferies notes is equal to 3.25 percent the fair market value of their MBS portfolio and 6.5 times larger than typical end of period cash.
Finally, "Management pointed to the reduction in the LTV cap from $729K to $625K as the main catalyst of the increase in CPR from 11 to 18. Management expects HARP2 to only have half the impact of HARP1, which equates to around 400K refis, or a minimal impact on the market."
On the report, Jefferies trimmed its 2011 EPS estimate from $2.88 to $2.63, and 2012 from $2.91 to $2.41.
For more ratings news on Annaly Capital Management click here and for the rating history of Annaly Capital Management click here.
Shares of Annaly Capital Management closed at $16.32 yesterday.
Annaly reported third-quarter adjusted earnings of 65 cents per share, which was in-line with consensus views, but below Jefferies expectation for 72 cents per share.
Jefferies noted an increase in premium amortization from $126 million in the second-quarter, to $201 million this last quarter, a 60 percent jump, came from higher prepayment rates.
Further, Jefferies said, "over the past three quarters, the weighted average pay rate declined from 2.92 percent in 1Q11 to 2.79 percent in 2Q11 and to 2.57% in 3Q11. We believe the high pay rate on their vintage swap likely resulted in management's decision to also use I/O strip securities as a book value hedge since increasing the swap book would negatively impact net asset spreads."
Annaly also ended the quarter with about $3.5 billion in cash, which Jefferies notes is equal to 3.25 percent the fair market value of their MBS portfolio and 6.5 times larger than typical end of period cash.
Finally, "Management pointed to the reduction in the LTV cap from $729K to $625K as the main catalyst of the increase in CPR from 11 to 18. Management expects HARP2 to only have half the impact of HARP1, which equates to around 400K refis, or a minimal impact on the market."
On the report, Jefferies trimmed its 2011 EPS estimate from $2.88 to $2.63, and 2012 from $2.91 to $2.41.
For more ratings news on Annaly Capital Management click here and for the rating history of Annaly Capital Management click here.
Shares of Annaly Capital Management closed at $16.32 yesterday.
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