How to Approach Annaly Stock With Easing Mortgage Rates?

Core Insights - Annaly Capital Management's (NLY) performance is significantly influenced by mortgage rates, which have been easing recently, with the average rate on a 30-year fixed-rate mortgage at 6.19% as of December 4, 2025, down from 6.23% the previous week and 6.69% a year ago [1][2] Mortgage Market Dynamics - Housing affordability challenges are declining due to lower mortgage rates, leading to increased loan demand and positive trends in mortgage originations and refinancing activities, which will likely reduce operational and financial challenges for mREITs like NLY [2] - The Federal Reserve has cut its benchmark interest rates twice this year, with expectations for further cuts, which will ease earnings pressure and support NLY's net interest income (NII) growth [3] Portfolio and Strategy - NLY's diversified investment strategy includes Agency mortgage-backed securities (MBS), residential credit, and mortgage servicing rights (MSR), with a portfolio totaling $97.8 billion as of September 30, 2025, of which $87.3 billion consists of highly liquid Agency MBS [4][10] - The company is enhancing its MSR platform through partnerships, such as a long-term agreement with PennyMac Financial Services, which is expected to improve cost control and operating flexibility [5] - NLY has streamlined its focus on core housing finance operations by exiting commercial real estate and Middle Market Lending businesses, allowing for more targeted capital deployment and improved risk management [6][7] Financial Position - As of September 30, 2025, NLY held $8.8 billion in total assets available for financing, including $5.9 billion in cash and unencumbered Agency MBS, providing ample liquidity during adverse market conditions [8] - NLY has raised its cash dividend by 7.7% to 70 cents per share in March 2025, with a current dividend yield of 12.3% [11][10] Growth Estimates - The Zacks Consensus Estimate for NLY's 2025 and 2026 sales indicates year-over-year growth of 399.6% and 53.2%, respectively [13] - The Zacks Consensus Estimate for NLY's 2025 and 2026 earnings indicates year-over-year growth of 7.4% and 1.5%, respectively [16] Market Performance - NLY shares have gained 14.7% over the past year, outperforming the industry, which has seen a decline of 1.2% [19] - The company's fundamentals are supported by its diversified portfolio, solid liquidity, and disciplined shareholder return framework, with a large allocation to Agency MBS providing stability [21] Valuation Considerations - NLY is currently trading at a forward 12-month price-to-tangible book (P/TB) multiple of 1.14X, which is higher than the industry average of 1.04X, suggesting it may be considered expensive relative to peers [22]