AGNC Investment (AGNC) drew fresh attention after recent share price moves, with the stock closing at $10.81. Investors are weighing its mortgage focused REIT model and recent total return figures in relation to ongoing housing market conditions.
Over the past year, AGNC Investment’s share price has moved more modestly than its income focused profile might suggest. There has been a small decline year to date, compared with a 30 day share price return of 1.6% and a 90 day share price return of 2.46%, which hints at steadier momentum building recently. In contrast, the 1 year total shareholder return of 26.46% and 3 year total shareholder return of 68.57% indicate that dividends and reinvested distributions have been a major part of the story for longer term holders.
Compare AGNC Investment’s income focused profile with other high yielding plays by scanning our hand picked 11 dividend fortresses that aim to balance payout strength with resilience.
AGNC Investment offers income exposure to agency backed mortgages, yet the recent share price and total return profile leave a key issue unresolved. Are investors paying a fair price for that income stream today, or a premium?
Price-to-Earnings of 6.1x: Is it justified?
On the numbers available, AGNC Investment screens as inexpensive relative to its earnings. The stock closed at $10.81 and is described as trading at good value compared to peers and the broader US Mortgage REITs industry, while also sitting 41.9% below an internal fair value estimate based on future cash flows.
The preferred valuation metric here is the P/E ratio. AGNC Investment is reported on a P/E of 6.1x, which compares to a US Mortgage REITs industry average of 8.9x and a peer group average of 14.4x. A lower P/E can indicate the market is placing a lower price on each dollar of current earnings than it does for comparable companies.
For a mortgage focused REIT with earnings growth described as very large over the past year and 29.9% per year over five years, this gap is striking. It suggests investors are attaching a more cautious multiple to AGNC Investment’s current earnings stream compared with both its industry and similar sized peers. The fair P/E ratio is estimated at 10.8x, which is materially higher than the current 6.1x level and points to a valuation level the market could move towards if sentiment and assumptions around the earnings base align with that fair ratio framework.
To go deeper into how this fair ratio is derived and what it implies for AGNC Investment over time, review the Explore the SWS fair ratio for AGNC Investment.
Result: Price-to-Earnings of 6.1x (UNDERVALUED)
However, investors still need to watch for pressure from declining revenue and net income growth, as well as any shift in housing or interest rate conditions that could affect AGNC Investment’s mortgage portfolio.
Find out about the key risks to this AGNC Investment narrative.
Another View on AGNC Investment’s Value
The P/E comparison paints AGNC Investment as inexpensive, yet a different lens tells a slightly richer story. The stock is also described as trading 41.9% below an internal fair value estimate based on future cash flows, which points to a sizeable implied valuation gap that investors need to interpret for themselves.
Our DCF model takes those future cash flows and discounts them back into today’s dollars. It also suggests AGNC at $10.81 is below an estimated future cash flow value of $18.61, which again points to an undervalued result. The question is whether you place more weight on the earnings-based view or on the cash flow model for a mortgage REIT like this.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AGNC Investment for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Given this mix of potential upside and areas of concern around AGNC Investment, it makes sense to look at the details yourself and move quickly while the current picture is still fresh. To see both sides in one place and shape your own view, start with the 3 key rewards and 3 important warning signs.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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