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In a report published Wednesday, Compass Point analysts maintained a Neutral rating on
American Capital Agency Corp, with a price target of $24.
American Capital Agency reported mixed 1Q05 results. While the company's core EPS at $0.70, (excluding $0.05 of catch up premium amortization cost) was short of estimates, its book value per share stability was positive.
Higher expected CPRs drove the company to shrink the TBA portfolio to an average of $7.0B from $14.5B. The earnings contribution from the TBA strategy declined to $0.16 per share in 1Q15 from $0.47 per share in 4Q14.
"The company reduced its monthly dividend for May by 9 percent to $0.20 per share from $0.22. With leverage ticking lower and hedges up sequentially, AGNC management has clearly prioritized capital preservation over earnings in the current environment," the analysts mentioned.
The risk of higher CPRs and lower dollar roll contributions is likely to continue restricting the company's performance in the near future. "…even with dividend stability anticipated from here, we lack clarity on a catalyst to re-value shares higher," the analysts added.
The core EPS estimates for 2Q15 and 2015 have been reduced from $0.74 to $0.61 and from $2.92 to $2.57, respectively, largely due to lower income from dollar rolls and continued margin compression from higher CPRs. The EPS estimate for 2016 has been raised from $2.73 to $2.76.
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