AGNC Investment (AGNC) Stock Looks Cheap On Fair Value As Earnings Stay Low

AGNC Investment stock has delivered a strong 68.1% total return over the past three years, yet multiple valuation checks and an Excess Returns intrinsic value estimate both suggest the shares still trade at a discount to what the business may be worth.

• AGNC Investment has returned 68.1% over three years, which puts current investors in a comfortable position and raises the question of how much value is already reflected in the price.
• The key support for the current valuation can be the company’s ability to generate attractive returns on its mortgage securities portfolio. Sensitivity to interest rate moves and funding costs remains the main risk that can pressure those returns.
• The broader checks lean cheap, with AGNC Investment scoring 5 out of 6 on value, and the Excess Returns intrinsic value framework pointing to a meaningful gap between price and estimated worth.

The issue now is whether AGNC Investment still offers enough valuation upside after that multi year run to appeal to new investors who are looking at the stock today.

Compare AGNC Investment's valuation gap with a curated set of other potential mispriced opportunities by scanning the 45 high quality undervalued stocks that meet strict quality and balance sheet checks.

Is AGNC Investment a Bargain on Excess Returns?

The Excess Returns model looks at how much profit AGNC Investment can generate above its equity cost on a per share basis. For AGNC, the inputs point to a company that is expected to earn more than its required return on equity over time.

The model uses a Book Value of $9.08 per share and a Stable EPS of $1.52 per share, based on weighted future Return on Equity estimates from 7 analysts. Against a Cost of Equity of $0.91 per share, this implies an Excess Return of $0.61 per share and an Average Return on Equity of 16.70%. The Stable Book Value is $9.11 per share, based on forecasts from 4 analysts. Based on these inputs, the Excess Returns approach arrives at an intrinsic value of about $18.67 per share, which is 41.6% above the current share price and therefore points to AGNC Investment screening as undervalued in this framework.

On these Excess Returns assumptions, AGNC Investment stock appears undervalued relative to its estimated intrinsic worth.

Our Excess Returns analysis suggests AGNC Investment is undervalued by 41.6%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for AGNC Investment.

Is AGNC Investment a Bargain on Earnings?

The P/E ratio suits AGNC Investment because earnings are a key reference point for many investors in mortgage REITs. AGNC Investment currently trades on a P/E of 6.2x, which is below both the Mortgage REITs industry average of 9.0x and the peer group average of 14.3x. On simple comparisons, the stock changes hands at a lower price relative to its earnings than many sector peers.

A more tailored check uses a fair P/E ratio of 10.8x that reflects AGNC Investment's sector, size and risk profile. Compared with the current 6.2x, this highlights a sizeable gap between where the shares trade and where they might trade if investors valued the earnings stream at that fair multiple. For readers, it signals that the market is attaching a relatively low price to each dollar of AGNC Investment earnings compared with these benchmarks.

On the P/E multiple, AGNC Investment stock appears undervalued relative to both its sector and a fair value benchmark.

See what the numbers say about this price — find out in our valuation breakdown.

The AGNC Investment Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for AGNC Investment pick up where the valuation checks leave off and outline the kind of growth, margins and earnings path that would need to hold for the stock to be worth materially more or materially less than today's price. Instead of a single output from a ratio or model, Narratives describe the future that number rests on so you can monitor how AGNC Investment's actual progress lines up over time on the Community page.

You can add your voice to the AGNC Investment story by sharing a Narrative that spells out your number driven view on where its growth, margins and execution go from here. Set out your thesis now and see how it stacks up as new information and results arrive.

Do you think there's more to the story for AGNC Investment? Head over to our Community to see what others are saying!

The Bottom Line

AGNC Investment screens as undervalued on both the Excess Returns intrinsic value estimate and on its current earnings multiple, which point in the same direction. That alignment suggests the key question now is whether the market eventually closes part of that gap or keeps discounting the stock for its interest rate and funding risks. For readers, the crux is how comfortable you are with those risks in exchange for a valuation that still prices AGNC Investment below what these models imply the business may be worth.

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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