Annaly stock price forecast: Is this a value trap?

By:
on Apr 26, 2022
  • Annaly stock price has been under pressure lately.
  • The company sold its middle market lending portfolio.
  • It has an excellent dividend yield but it could be a value trap.

The Annaly (NYSE: NLY) stock price has crashed hard in the past few days. The stock has retreated to a low of $6.53, which is about 25% below the highest level in June 2021. It is close to its lowest level since November 2020. 

Is Annaly a value trap?

Annaly is a $9.5 billion company that focuses on generating returns to its shareholders. The company operates its Annaly Agency Group business which has over $81.5 billion in assets. Its other business is Annaly Residential Credit Group which has over $4.6 billion in assets. 

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Annaly Middle Market Lending Group has over $2 billion assets. On Monday, the company said that it had decided to sell its credit division to Ares Capital Management. It expects to distribute these returns to shareholders. The statement said:

“The sale of our Middle Market Lending portfolio represents a successful outcome for Annaly’s shareholders and marks the latest in a series of strategic actions that have enhanced our focus and capabilities across our core housing finance strategy.”

The decision came ahead of the company’s earnings. Analysts expect that the company’s revenue rose to over $360 million from the previous $302 million. Its earnings per share are expected to have risen to 25 cents. 

Investors love Annaly for its dividends. It has a dividend yield of 13.48% and a payout ratio of 76.52%. However, the company has a long track record of cutting dividends. 

Another risk for Annaly is that interest rates are set to keep rising this year. The Fed has already hinted that it will deliver at least six rate hikes. Some of these hikes will be in the range of 0.25%. Therefore, as a company with an exposure to the mortgage industry, there is a likelihood that it will underperform.

Annaly stock price forecast

The Annaly Capital stock price has been in a strong bearish trend in the past few months. It has moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has kept falling. 

The shares have also formed what looks like a double-bottom pattern ahead of earnings. Therefore, there is a likelihood that it will rebound after publishing its quarterly results. If this happens, the stock will likely keep rising to a high of $7.

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