Nov 06, 2017

Annaly Capital Management, Inc.(NYSE: NLY) Zacks Rank 3-Hold

$11.23 USD ( As of 11/03/17 ) Style:Value: Growth: Momentum: VGM:

Data Overview Summary

52 Week High-Low $12.66 - $9.89 Annaly’s third-quarter adjusted core earnings of 30 cents per share surpassed the
20 Day Average Volume 13,683,798
Zacks Consensus Estimate and also compared favorably with the year-ago quarter
figure of 29 cents. Results reflect an improvement in average yield on interest earning
Beta 0.23
assets and net interest margin on a year-over-year basis. However, net interest
Market Cap 12.95 B income declined year over year. Going forward, the company’s prudent selection of
Dividend / Div Yld $1.20 / 10.69% assets, diversified investment and financing options, as well as exposure to high-
Industry REIT and Equity Trust
quality mortgage-backed securities (MBSs) are anticipated to support bottom-line
growth. Moreover, shares of Annaly have outperformed the industry year to date.
Industry Rank 94 / 265 (Top 35%)
Also, the stock has seen the Zacks Consensus Estimate for fourth-quarter and 2017
Current Ratio 0.03 earnings being revised upward in a week’s time. However, intense competition,
Debt/Capital 21.43% adverse macro-economic conditions and any rise in rate of interest may add to the
Net Margin 104.56%
company’s woes.

Price/Book (P/B) 1.06

Price/Cash Flow (P/CF) 5.56 Elements of the Zacks Rank

Earnings Yield 10.60%
Agreement Estimate Revisions (60 days)
Debt/Equity 0.30

Value Score 50% 50% 67% 100%

P/E (F1) 9.41

P/E (F1) Rel to Industry NA

Q1 (Current Qtr) Q2 (Next Qtr) F1 (Current Year) F2 (Next Year)
PEG Ratio NA Revisions: 2 Revisions: 2 Revisions: 3 Revisions: 3
P/S (F1) 5.07 Up: 1 Down: 1 Up: 1 Down: 1 Up: 2 Down: 1 Up: 3 Down: 0

P/S (TTM) NA
Magnitude Consensus Estimate Trend (60 days)
P/CFO 5.56

P/CFO Rel to Industry NA

EV/EBITDA Annual 7.42

Growth Score
Proj. EPS Growth (F1/F0) 1.99% 60 30 7 Current 60 30 7 Current 60 30 7 Current 60 30 7 Current
Days Days Days Days Days Days Days Days Days Days Days Days
Hist. EPS Growth (Q0/Q-1) -10.48% Q1 +3.57% Q2 0% F1 0% F2 +0.82%
Qtr CFO Growth NA

2 Yr CFO Growth NA
Upside Zacks Consensus Estimate vs. Most Accurate Estimate
Return on Equity (ROE) 11.85%

(NI - CFO) / Total Assets NA

Asset Turnover 0.03

Momentum Score Most Accurate: 0.29 Most Accurate: 0.29 Most Accurate: 1.20 Most Accurate: 1.23
Zacks Consensus: 0.29 Zacks Consensus: 0.29 Zacks Consensus: 1.20 Zacks Consensus: 1.23
1 week Volume change NA%
Q1 0.00% Q2 0.00% F1 0.00% F2 0.00%
1 week Price Cng Rel to Industry -0.06%

(F1) EPS Est 1 week change 0.28%

Surprise Reported Earnings History
(F1) EPS Est 4 week change 0.00%

(F1) EPS Est 12 week change 1.42%

(Q1) EPS Est 1 week change NA%

Reported: 0.30 Reported: 0.30 Reported: 0.31 Reported: 0.30 Average 4 Qtr
Surprise
Estimate: 0.29 Estimate: 0.30 Estimate: 0.30 Estimate: 0.30
Q End 09/17 Q End 06/17 Q End 03/17 Q End 12/16

© 2017 Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 1600 · Chicago, IL 60606
 The data on the front page and all the charts in the report represent market data as of 11/03/17, while the reports text is as of
11/06/2017

Overview
Annaly Capital Management, Inc. is a mortgage real estate
investment trust (mREIT) that primarily owns, manages and
finances a portfolio of real estate related investment securities.
Its investment portfolio includes agency MBS, agency pass-
through certificates, collateralized mortgage obligations (CMOs),
interest-only securities and credit risk transfer (CRT). The
company’s investment may also comprise agency debentures,
to-be-announced forward contracts (TBAs), other securities,
commercial real estate assets and corporate debt.

Annaly has four investment groups — Agency, Residential

Credit, Commercial Real Estate and Middle Market Lending.

The agency mortgage-backed securities (MBS) are backed by

single-family residential mortgage loans. These loans are
secured with a first lien position on the underlying single family
properties. The CMOs are mostly issued or guaranteed by
Freddie Mac, Fannie Mae or Ginnie Mae.

On Jul 12, 2016, Annaly closed the previously announced

acquisition of Winston Salem, NC–based mREIT, Hatteras
Financial Corp. for $1.5 billion. This strategic acquisition has
solidified Annaly’s position in the mREIT space.

On Jul 10, 2017, the company announced that it has agreed to

sell Pingora Holdings, L.P. — an indirect wholly owned subsidiary — to Bayview Asset Management. During third-quarter earnings, the
company announced that it has closed the sale while maintaining ownership interests in mortgage servicing rights.

Zacks Equity Research: NLY Page 2 of 7

 Reasons To Buy:
Annaly’s investment strategy is driven by prudent selection of assets and effective Prudent selection of
allocation of capital to achieve better returns. Its investment strategy involves traditional assets, exposure to high-
agency MBSs as well as investments in more credit-focused asset classes. With quality MBS, expansion of
majority of its portfolio in the form of high-quality (AA+ or better) MBS and short-term commercial real estate
investments, Annaly is well poised to ride on growth curves. In addition, in the third investments and solid
quarter, the company witnessed strong portfolio growth in its agency MBS sector. financial position keep its
growth momentum going.
In July 2016, Annaly closed the acquisition of Hatteras Financial Corp. for $1.5 billion.
This strategic acquisition has further aided in diversifying the investment and financing
options of the company. In fact, as part of the diversification strategy, the company is allocating a chunk of the stockholders’ equity
to assets other than agency MBS. The company is focusing on expanding its commercial real estate investments, which is likely to
strategically complement its agency investments by providing longer-term floating-rate cash flows to the shareholders.

Despite turbulent market conditions in the past, Annaly continued to pay the same dividend of 30 cents per share for the 16th
consecutive quarter and maintained a decent return on equity. Given the company’s financial position and lower debt-to-equity ratio
compared to that of the industry, this dividend payout is expected to be sustainable.

Annaly enjoys a diverse funding profile in the industry. The company’s approximately $9.6 billion high-quality unencumbered assets
provide adequate capital buffer. Its main sources of financing are repurchase agreements and various forms of equity. Annaly enters
into repurchase agreements primarily with national broker-dealers, commercial banks and other lenders that typically offer financing
for agency MBS. Moreover, RCap, the company’s wholly owned subsidiary, enters into repurchase contracts on behalf of the
company. This helps the company enjoy flexibility in the opportunistic enhancement of its portfolio.

Shares of Annaly have outperformed its industry year to date, gaining 12.6% as against the industry’s growth of 4.6%. Further, the
Zacks Consensus Estimates for fourth-quarter 2017 and current-year earnings have been revised 3.6% and 0.8% upward in a
week’s time.

Reasons To Sell:
Annaly operates in a highly competitive market. It has to compete with other financial Competition with several
institutions, institutional investors, lenders, government bodies and mortgage REITs to players and adverse
acquire assets in target markets, which adversely affect the pricing of securities. macro-economic
conditions remain a
Operating performance of mREITs, including Annaly depend upon conditions prevailing concern. A rise in rate of
in the MBS and broader financial markets, as well as on the macro economic situation. interest may further add to
Adverse financial market conditions may result into de-leveraging of the global financial its woes.
system and the forced sale of mortgage assets. Further, concerns over economic
downturn, geopolitical issues and unemployment may lead to increased volatility in the
market.

We believe that due to interest rate hike, the company may have to face higher borrowing cost and this will likely have adverse
effects on the company’s growth prospects going forward.

Last Earnings Report

Annaly Capital’s Q3 Earnings Beat Estimates, NII Dips Quarter Ending 09/2017

Report Date Nov 01, 2017

Annaly reported third-quarter 2017 adjusted core earnings of 30 cents per share,
surpassing the Zacks Consensus Estimate of 29 cents. Also, earnings compared favorably Sales Surprise NA
with the prior-year quarter figure of 29 cents. EPS Surprise 3.45%
Quarterly EPS 0.30
Results highlight an increase in the to-be-announced dollar roll income.
Annual EPS (TTM) 1.21

Net interest income (NII) in the third quarter totaled $353.6 million, representing year-over-
year decline of 0.8%.

Quarter in Detail

In the reported quarter, average yield on interest-earning assets excluding premium amortization adjustment (PAA) was 2.97%, up 25
basis points (bps) year over year.

Net interest rate spread (excluding PAA) of 1.15% for the quarter remained unchanged year over year. Net interest margin (excluding
PAA) came in at 1.47% compared with 1.42% recorded in the year-earlier period.

The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) was $85.8 billion as of
Sep 30, 2017, up from $74 billion as of Sep 30, 2016.

Annaly’s book value per share came in at $11.42 as of Sep 30, 2017, compared with $11.19 as of Jun 30, 2017. At the end of the third
quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 12.3%, compared to 13.3% as

Zacks Equity Research: NLY Page 3 of 7

 of Sep 30, 2016.

Leverage was 5:4:1 as of Sep 30, 2017, compared with 5.3:1 as of Sep 30, 2016. The company offered an annualized core return on
average equity of 10.57% in the reported quarter, up from 10.09% in the year-ago period.

Recent News
Annaly Announces Public Offering of 65 Million Shares — Oct 6, 2017

Annaly announced pricing of a public offering of 65 million shares of common stock. The underwriters will get a 30-day option to
purchase up to an additional 9.75 million shares. The underwriters proposed the prevailing market price at the time of sale or negotiated
price for selling the stock from time to time.

The company expects to raise approximately $780 million, before making adjustments for estimated offering expenses.

Annaly plans spend the proceeds for targeted asset acquisitions under its capital allocation policy. It will also be used for general
corporate purposes, which may include trimming Annaly’s liabilities and working capital items. This public offering will help in
diversifying the company’s investment options. In fact, as part of the diversification strategy, it will allocate a chunk of the
stockholders’ equity in a variety of assets.

It may expand its Agency, residential, commercial and corporate credit assets investment such as middle market corporate loans,
residential mortgage loans, Agency MBS pools, adjustable rate mortgages, TBA forward contracts, commercial real estate loans and
securities and mortgage servicing rights.

Annaly Closes Common and Preference Stock Offering – Jul 31, 2017

Annaly announced that it has closed the common and preferred stock offering through which it raised approximately $1.5 billion gross
proceeds. This amount is before making any adjustments for offering expenses.

Underwriter’s option on the previously announced offering of 60 million shares were fully exercised, helping the company raise an
additional nine million common shares. The company raised around $816 million from this additional issue.

The company also raised gross proceeds of approximately $700 million and closed the public offering of 28 million shares of its 6.95%
Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock.

Dividend Update

On Sep 14, Annaly announced third-quarter 2017 cash dividend of 30 cents per share. This dividend was paid on Oct 31 to
shareholders of record as of Sep 29, 2017.

Zacks Equity Research: NLY Page 4 of 7

 Industry Analysis Zacks Industry Rank: 94 / 265 (Top 35%) Top Peers

New Residential Investment Corp. (NRZ)

Altisource Portfolio Solutions S.A. (ASPS)
Chimera Investment Corporation (CIM)
AGNC Investment Corp. (AGNC)
STARWOOD PROPERTY TRUST, INC. (STWD)
Two Harbors Investments Corp (TWO)
MFA Financial, Inc. (MFA)
Ladder Capital Corp (LADR)
NorthStar Asset Management Group, Inc. (CLNS)

Industry Comparison Reit And Equity Trust | Position in Industry: 9 of 28 Industry Peers

NLY X Industry S&P 500 NRZ ASPS CIM

Market Cap 12.95 B 534.82 M 21.62 B 5.38 B 458.91 M 3.40 B
# of Analysts 3 2.5 14 3 2 1
Dividend Yield 10.69% 8.72% 1.81% 11.43% 0.00% 11.04%

Growth Score - -
Hist. EPS Growth (3-5 yrs) -10.48% -4.36% 6.83% 0.10 0.36 0.05
Proj. EPS Growth (F1/F0) 1.99% -4.84% 9.75% 19.50 4.61 23.36
Curr. Cash Flow Growth -2.52% -3.28% 5.63% 6.56 0.47 NA
Hist. Cash Flow Growth (3-5 yrs) -7.71% 27.27% 6.86% 1.15 7.15 0.95
Current Ratio 0.03 1.97 1.35 NA 2.75 7.40
Debt/Capital 21.43% 56.71% 41.77% 6.56 9.42 7.84
Net Margin 104.56% 56.81% 10.21% 3.61 0.49 3.10
Return on Equity 11.85% 10.24% 15.69% 15.26% 10.61% 12.75%
Sales/Assets 0.03 0.04 0.54 0.00 6.46 2.73
Proj. Sales Growth (F1/F0) 0.00% 0.00% 5.58% -0.94 9.32 2.45
Value Score - -
Cash/Price 0.05 0.16 0.05 38.70% -4.36% 7.28%
EV/EBITDA 7.42 16.93 13.07 24.65% -40.74% -4.15%
PEG Ratio NA 1.90 2.07 73.53% -21.05% -6.78%
Price/Book (P/B) 1.06 0.93 3.16 NA 15.74% 38.83%
Price/Cash Flow (P/CF) 5.56 7.40 14.11 0.34 2.57 0.04
P/E (F1) 9.41 10.03 19.62 0.00% 86.60% 73.21%
Price/Sales (P/S) 5.07 3.86 2.50 60.06% 0.23% 58.21%
Earnings Yield 10.60% 9.95% 5.06% 19.38% 81.23% 13.53%
Debt/Equity 0.30 1.26 0.70 0.07 1.48 0.06
Cash Flow ($/share) 2.02 1.93 5.46 34.30% -5.94% 0.00%
Momentum Score - -
Daily Price Chg -0.53% -0.13% 0.11% -0.06% -2.99% -1.31%
1 Week Price Chg -0.06% -0.03% -0.00% 0.02% -0.04% -0.03%
4 Week Price Chg -9.29% -5.27% 0.62% 1.33% -6.08% -5.13%
12 Week Price Chg -8.48% -3.59% 6.05% 6.06% 9.81% -3.82%
52 Week Price Chg 9.99% 5.56% 21.99% 26.08% 5.08% 11.37%
20 Day Average Volume 13,683,798 289,982 2,036,144 2,223,079 120,845 819,687
(F1) EPS Est Wkly Chg 0.28% 0.00% 0.00% 1.23% -3.89% 0.00%
(F1) EPS Est Mthly Chg 0.00% 0.00% 0.17% 1.23% -3.89% 0.00%
(F1) EPS Est Qtrly Chg 1.42% 0.65% 0.33% 8.88% 5.02% 0.00%
(Q1) EPS Est Mthly Chg 1.79% 0.00% 0.00% 0.00% -10.74% 0.00%

Zacks Equity Research: NLY Page 5 of 7

 Zacks Rank Education
The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise.

Agreement
This is the extent which brokerage analysts are revising their earnings estimates in the same
direction. The greater the percentage of estimates being revised higher, the better the score for this
component.

For example, if there were 10 estimate revisions over the last 60 days, with 8 of those revisions up,
and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the
downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the
percentage of agreement the better.

Magnitude
This is a measure based on the size of the recent change in the current consensus estimates. The
Zacks Rank looks at the magnitude of these changes over the last 60 days.

In the chart to the right, the display shows the consensus estimate from 60-days ago, 30-days ago,
7-days ago, and the most current estimate The difference between the current estimate and the
estimate from 60-days ago is displayed as a percentage. A larger positive percentage increase will
score better on this component.

Upside
This is the difference between the most accurate estimate, as calculated by Zacks, and the
consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most
accurate estimate of $1.05 will have an upside factor of 5%.

This is not an indication of how much a stock will go up or down. Instead, it's a measure of the
difference between these two estimates. This is particularly useful near earnings season as a
positive upside percentage can be used to help predict a future surprise.

Surprise
The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have
positively surprised in the recent past have a tendency of positively surprising again in the future (or
missing if they recently missed).

A stock with a recent track record of positive surprises will score better on this factor than a stock
with a history of negative surprises. These stocks will have a greater likelihood of positively
surprising again.

Zacks Style Score Education

The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to
focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Value Score

Academic research has proven that stocks with the best Growth, Value, and Momentum Growth Score
characteristics outperform the market. The Zacks Style Scores rate stocks on each of these Momentum Score
individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than
a C; and so on. VGM Score

As an investor, you want to buy stocks with the highest probability of success. That means buying
stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B.

Zacks Equity Research: NLY Page 6 of 7

 Disclosures
The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks
Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the
analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or
will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional
information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we
believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the
report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed
herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities
herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy
or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a
proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness
of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank
2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each
company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total.
Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better.
Historically, the top half of the industries has outperformed the general market.

Zacks Equity Research: NLY Page 7 of 7