Is It Too Late To Consider AGNC Investment (AGNC) After A 43.5% One Year Return?
- Investors may be considering whether AGNC Investment is still sensibly priced after a strong run, or whether recent returns have already incorporated most of the potential upside.
- The stock recently closed at US$10.94, with a 7.8% move over 30 days, a small 0.1% gain year to date, and a 43.5% return over the last year that may have shifted how the market views its risk and reward profile.
- Recent coverage has focused on AGNC Investment's role as a mortgage REIT and how changing expectations around interest rates and funding conditions could influence its portfolio and dividend profile. This context helps frame why a stock that returned 80.2% over 3 years and 17.7% over 5 years is drawing renewed attention.
- On Simply Wall St's 6 point valuation checklist, AGNC Investment scores a 5 out of 6. This sets up a closer look at traditional valuation methods next, and a different way of thinking about fair value at the end of this article.
Approach 1: AGNC Investment Excess Returns Analysis
The Excess Returns model looks at how effectively AGNC Investment uses shareholder capital by comparing the return on equity to the cost of that equity and projecting how this gap might persist.
For AGNC Investment, book value is $8.90 per share and the average return on equity is 16.21%. That translates into stable EPS of $1.54 per share, based on weighted future return on equity estimates from 6 analysts. The cost of equity is estimated at $0.92 per share, so the model treats the difference of $0.62 per share as the excess return AGNC Investment can generate on its equity base.
The analysis also uses a stable book value of $9.47 per share, sourced from weighted future book value estimates from 4 analysts, to extend these excess returns over time. Discounting those projected excess earnings back to today gives an intrinsic value estimate of US$19.26 per share.
Set against the recent share price of US$10.94, the Excess Returns model implies the stock is 43.2% undervalued on this measure.
Result: UNDERVALUED
Our Excess Returns analysis suggests AGNC Investment is undervalued by 43.2%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.
Approach 2: AGNC Investment Price vs Earnings (P/E)
P/E is a useful way to think about value for companies that are generating earnings, because it links what you pay per share to the profit that each share is currently producing.
In simple terms, higher growth expectations and lower perceived risk usually justify a higher P/E. By contrast, slower growth and higher risk tend to align with a lower, more cautious P/E range.
AGNC Investment currently trades on a P/E of 9.64x. That sits below the Mortgage REITs industry average P/E of 11.65x and the peer average of 11.72x, so the market is currently pricing AGNC Investment at a discount to these broad benchmarks.
Simply Wall St’s Fair Ratio is a proprietary estimate of what a reasonable P/E could be for AGNC Investment, based on factors such as its earnings profile, profit margins, industry, market cap and risk characteristics. This gives a more tailored yardstick than simple peer or industry comparisons, which treat very different businesses as if they should all trade on the same multiple.
AGNC Investment’s Fair Ratio is 14.83x, which is higher than the current P/E of 9.64x, suggesting the shares are trading below this modelled fair value range on an earnings basis.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your AGNC Investment Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you write the story behind your numbers by linking your view of AGNC Investment, your forecast for revenue, earnings and margins, and your fair value estimate into a single framework. This framework sits on the Community page, updates automatically when new news or earnings arrive, and helps you compare your fair value to the current price to decide whether to buy, hold or sell. As a result, one investor might build a more optimistic AGNC story aligned with the higher US$11.00 analyst target, while another might lean on a more cautious view closer to the US$8.25 target.
Do you think there's more to the story for AGNC Investment? Head over to our Community to see what others are saying!
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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