A Review of CYS Investments Inc.’s (NYSE:CYS) Earnings & Annaly Capital Management (NYSE:NLY)


CYS Management (NYSE:CYS) and Annaly Capital Management (NYSE:NLY) have identical business structures, and due to this similarity; the stock prices of both companies have shown similar trends, over the years. On October 20, CYS (NYSE:CYS) revealed its 3rd quarter figures, making it the first mortgage real estate investment trust that revealed its quarterly figures in this earning season.

Following are the three steps that are responsible for leading Annaly Capital Management (NYSE:NLY) to its earning on November 5:

  • Earnings:

CYS Investments Inc. (NYSE:CYS) and Annaly Capital Management (NYSE:NLY) are both investment companies, therefore, both will have underlying benefits on their investments. This is the reason why the core earnings of the two companies should be studied. The core earnings include both the gains as well as the losses on the investments made by the companies.  The CYS (NYSE:CYS)’s core earnings for 2014’s 3rd quarter totalled up to $45.143, respectively. The 3rd quarter earnings of 2014 are much more catastrophic, as compared to the earnings of the earlier quarters. However, the underlying gain does make the situation slightly better. CYS (NYSE:CYS) still had to decrease its dividend from $0.32 to $0.30 per share. The interest rates are expected to be increased by the Mortgage real estate investment trusts, which mean keeping fewer assets. This will cause strain in earnings, refraining Annaly (NYSE:NLY) from increasing its dividend.

  • The monopolization of supplies by the U.S Federal Reserve:

By the end of this month, the Federal Reserve is expected to bring an end to the huge bond-buying program, affiliated with “quantitative easing”. The U.S central bank has mortgage-backed securities of $1.7 trillion, which it will use to carry on its investments in interest and principal payments. Due to this, it seems highly improbable that there will be any increase in mortgage supply, or reduction of prices in the near future.

Kevin Grant, the CEO of CYS (NYSE:CYS) Investments said that CYS (NYSE:CYS) will have opportunities, but they will be too short-termed to include mortgage securities. This means that Annaly (NYSE:NLY) and CYS (NYSE:CYS) are looking at a period of tighter spreads, lesser opportunities and tight earnings.

  • The silver lining:

Although, it seems that both the company’s earnings will be tight, some favourable development is expected for both businesses. As Grant said, that CYS (NYSE:CYS) will have the opportunity to buy back the shares. The shares are cheap as of now, and therefore it’s the best time to invest money in them. This year, the total return of Annaly (NYSE:NLY) was 23% and that of CYS (NYSE:CYS) was 34%, respectively. However, the combined mREIT is still considerably cheap. The buying back of shares will result in the decline of the total share outstanding, hence boosting the per share value.

Even though Grant made the suggestion, it hasn’t been put in to action as yet. CYS (NYSE:CYS) did not buy the shares in the 3rd quarter and the opportunity is still available. The question remains, if the company will utilize this strategy to bring about success.

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