American Capital Agency Corp.: Nomura Discusses The Little-Known 'Critical' Metric To Watch After The Earnings Beat

In a report issued Wednesday morning, Nomura analyst Brock Vandervliet takes a look at American Capital Agency Corp. AGNC following its recent earnings beat. The firm issued a Neutral rating and a $21 price target for the stock, which already trades around $21.40, after falling 1.52 percent on Wednesday morning.

Related Link: American Capital Agency's Q4 Beats Views

What’s particularly interesting about Nomura’s report is the metric it looks at. Rather than using GAAP EPS, the research firm employs a company-supplied non-GAAP metric called, “Net Spread & Dollar Roll EPS”.

“On this basis, AGNC came in well above our $0.81 estimate at $0.92. The main driver for the higher EPS was dollar roll income of $167mn (up $15mn from Q3’14), which was $23mn above our forecast,” the report says.

The EPS beat came in spite of a lower than expected net interest income of $250 million (about $6 million below the firm’s forecast) “due to a lower net interest spread. Dollar roll is an ongoing concern and one the Street is likely to focus more on with every passing quarter. Its performance was well above our estimate and drove the EPS beat. Based on our understanding of dollar roll dynamics more recently, we may have been a quarter premature with respect to forecasting a decline in dollar roll. Given the magnitude of dollar roll earnings as a fraction of total earnings, this remains a critical variable.”