Annaly Capital Management
NLY
$21.31
+1.24%
Annaly Capital Management is a mortgage real estate investment trust (mREIT) that invests primarily in Agency mortgage-backed securities collateralized by residential mortgages, alongside non-Agency residential credit, mortgage servicing rights, and a middle-market lending joint venture, operating within the Real Estate sector's Mortgage REIT industry. As one of the largest and most recognizable names in the mREIT space, Annaly is a benchmark holding for income-focused investors, distinguished by its scale, diversified investment strategy across four reportable segments, and its externally visible role as a bellwether for the sector's sensitivity to interest rates and agency MBS spreads. The current investor narrative centers on the trajectory of Federal Reserve policy — recent headlines speculate about the implications of a Kevin Warsh-led Fed and potential balance sheet reduction, which would pressure mREIT book values and spread income in the near term while potentially creating longer-term reinvestment opportunities. At the same time, the stock's persistent underperformance relative to the S&P 500 and its high dividend yield have reignited the debate over whether Annaly's double-digit payout is adequately covered by earnings, especially as the company has grown its equity base through consistent share issuance and its payout ratio sits near 93%.…
NLY
Annaly Capital Management
$21.31
Related headlines
Investment Opinion: Should I buy NLY Today?
The synthesized recommendation is Hold, with a bias toward accumulating on weakness for income-focused investors. The core thesis is that Annaly offers a compelling 13.2% dividend yield at a 0.89x price-to-book discount, but near-term earnings volatility and a 92.8% payout ratio limit the margin of safety. The analyst consensus is 'buy' with a recommendation mean of 1.92 and an average target price of $24.23, implying 15.1% upside, but the stock's recent -11.33% one-month decline suggests the market is pricing in rate risks that analysts have not yet fully incorporated.
Supporting evidence for the Hold rating includes: (1) the 0.89x P/B ratio, which is below the 0.94x-0.96x levels seen in Q1 2026 and Q4 2025, indicating the stock has de-rated; (2) revenue growth of 9.58% year-over-year in Q1 2026, driven by a larger asset base; (3) a 12.6% ROE and 2.3% ROA, which are respectable for a leveraged mREIT; and (4) the 13.2% dividend yield with 92.8% coverage, which remains intact but leaves no buffer. The forward PE of 6.77x and trailing PE of 7.66x are low in absolute terms but reflect depressed earnings rather than a deep value opportunity.
The biggest risks that could invalidate the thesis are a dividend cut (if earnings fail to cover the payout), further book value erosion from widening MBS spreads, and a sustained rise in interest rates that compresses net interest margins. The rating would upgrade to Buy if the Fed pivots toward easing, P/B falls below 0.85x, or Q2 2026 earnings show a rebound in net income above $500 million. It would downgrade to Sell if the payout ratio exceeds 100%, book value declines more than 10% in a quarter, or the dividend is cut. Relative to its own history and the mREIT peer group, NLY appears fairly valued to slightly undervalued at 0.89x book, but the high yield and negative momentum warrant a cautious stance.
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NLY 12-Month Price Forecast
Annaly presents a classic mREIT risk-reward profile: a deeply discounted 0.89x P/B and a 13.2% yield offer substantial income and potential upside, but the 72% quarter-over-quarter earnings decline and negative $1.58 billion free cash flow highlight the fragility of the dividend. The analyst consensus is bullish with a $24.23 average target, yet the stock's -11.33% one-month decline shows the market is trading on rate fear rather than fundamentals. The base case (50% probability) assumes a range-bound rate environment where the dividend is maintained and the stock drifts toward $24.23, while the bear case (25%) hinges on a dividend cut that could push the stock to $20.00 or lower. I would upgrade to bullish if the Fed signals a pause in balance sheet reduction and Q2 earnings show net income above $500 million; I would downgrade to bearish if the payout ratio exceeds 100% or book value declines more than 10% in a quarter.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Annaly Capital Management's 12-month outlook, with a consensus price target around $24.23 and implied upside of +13.7% versus the current price.
Average Target
$24.23
0 analysts
Implied Upside
+13.7%
vs. current price
Analyst Count
—
covering this stock
Price Range
$23 - $25
Analyst target range
Annaly is covered by 11 analysts, and the consensus is constructive: the recommendation is "buy" with a recommendation mean of 1.92 (where 1.0 is a strong buy and 5.0 is a sell), and the average target price is $24.23. Against the current price of $21.05, this implies upside of approximately +15.1% to the consensus target, a spread that is unusually wide for a large-cap, well-covered name and reflects the market's disagreement about the pace of Fed easing and its impact on mREIT book values. The consensus leans bullish, but the recent institutional ratings flow shows a pattern of reiterations rather than upgrades: Piper Sandler maintained Overweight on 2026-07-02, RBC Capital maintained Outperform on 2026-06-03, JP Morgan maintained Overweight on 2026-04-23 and 2026-04-16, and Jones Trading maintained Buy on 2026-04-22, while UBS stayed Neutral on 2026-04-24 and Barclays stayed Equal Weight on 2026-01-30. The absence of any downgrades is a mild positive, but the absence of upgrades suggests analysts are in a holding pattern awaiting clearer rate signals. The target range spans $22.50 to $25.00, a spread of $2.50, or roughly 11% of the midpoint — a relatively tight range that signals stronger conviction than the headline dispersion might suggest. The high target of $25.00 implies roughly +18.8% upside and would require a combination of book value stabilization, a Fed pivot toward easing, and multiple expansion back toward 1.0x book; the low target of $22.50 implies just +6.9% upside and prices in continued spread compression and a flat-to-modestly-lower book value. Notably, even the low target sits above the current price, meaning no analyst in the coverage universe has a target below $21.05 — a configuration that suggests the sell-off may be overdone relative to fundamental expectations, though the stock's -11.3% one-month decline indicates the market is trading on rate fear rather than analyst fundamentals. The estimated EPS range of $2.72 to $3.37 (average $3.02) and revenue range of $2.51 billion to $2.96 billion (average $2.72 billion) further frame the debate: the bull case requires EPS near the high end, which would support the dividend, while the bear case at $2.72 still covers the current payout but leaves little margin for error.
Bulls vs Bears: NLY Investment Factors
The bear case currently has stronger evidence due to the sharp deterioration in recent momentum (-11.33% in one month), the 72% quarter-over-quarter earnings collapse, and the stock's persistent underperformance versus the S&P 500. However, the bull case is supported by a deeply discounted 0.89x P/B, a 13.2% dividend yield with 92.8% coverage, and unanimous analyst targets above the current price with a $24.23 average. The single most important tension is whether the Fed's rate path will stabilize agency MBS spreads and book value, or whether further balance sheet reduction will pressure Annaly's earnings and force a dividend cut. If spreads normalize, the stock could re-rate toward book value; if they widen further, the 13.2% yield may prove unsustainable.
Bullish
- Analyst consensus implies 15% upside: All 11 covering analysts have a target above the current $21.05 price, with an average target of $24.23 (+15.1%) and a low target of $22.50 (+6.9%). The recommendation mean of 1.92 sits firmly in 'buy' territory, and the absence of any downgrades in the recent ratings flow (Piper Sandler Overweight, RBC Outperform, JP Morgan Overweight) suggests the sell-off is sentiment-driven rather than fundamental.
- Trades below book value at 0.89x P/B: The price-to-book ratio of 0.89x means the market values Annaly's equity at a 11% discount to its stated book value, a level that historically has marked attractive entry points for mREITs. If the Fed pivots toward easing and agency MBS spreads normalize, book value could stabilize and the multiple could re-rate toward 1.0x, implying roughly 12% upside from multiple expansion alone.
- 13.2% dividend yield with 93% payout coverage: The dividend yield of 13.2% is exceptionally high, and the payout ratio of 92.8% means the distribution is covered by trailing earnings, albeit with minimal margin. Forward EPS estimates of $3.02 versus the current annualized dividend imply coverage remains intact, and the stock's 4.3% proximity to its 52-week low of $20.00 limits further downside from a yield-support perspective.
- Revenue grew 9.6% YoY in Q1 2026: Q1 2026 revenue of $1.63 billion rose 9.58% from $1.49 billion in Q1 2025, driven by a larger investment portfolio as shares outstanding grew from 587 million to 723 million. While this growth is capital-funded rather than organic, it demonstrates Annaly's ability to scale its asset base and generate spread income even in a challenging rate environment.
Bearish
- Earnings collapse 72% quarter-over-quarter: Q1 2026 net income of $282.7 million (17.3% net margin) plunged from $1.01 billion (56.7% margin) in Q4 2025 and $832.4 million (51.1% margin) in Q3 2025. This extreme volatility illustrates how sensitive Annaly's earnings are to MBS spread widening and hedging costs, making the dividend vulnerable to a cut if spreads remain wide.
- Negative free cash flow of -$1.58 billion: Trailing free cash flow is deeply negative at -$1.58 billion, and Q1 2026 operating cash flow was -$1.40 billion, reflecting $6.23 billion of investment purchases against $6.77 billion of sales and maturities. This structural cash burn means Annaly depends on capital markets access to fund both its portfolio and its dividend, a significant risk if credit conditions tighten.
- Payout ratio of 92.8% leaves no buffer: With a payout ratio of 92.8% and a dividend yield of 13.2%, Annaly distributes nearly all of its earnings, retaining minimal capital for growth or unexpected losses. The bear-case EPS estimate of $2.72 still covers the current payout, but any further earnings decline would force a dividend reduction, which would likely trigger a sharp stock price decline.
- Severe underperformance versus S&P 500: NLY has declined 2.99% over one year and 8.08% year-to-date, versus the S&P 500's +15.01% and +11.70%, resulting in relative strength of -18.01% and -19.78%. The 1-month decline of -11.33% is far worse than the 3-month (-5.22%) and 6-month (+1.25%) changes, indicating accelerating selling pressure and a failed summer rally.
NLY Technical Analysis
Annaly is in a broad, range-bound consolidation with a distinctly negative tilt, having posted a 1-year price change of -2.99% and a year-to-date decline of -8.08% versus the S&P 500's +15.01% and +11.70% over the same periods. At the current price of $21.05, the stock sits just 4.3% above its 52-week low of $20.00 and 14.2% below its 52-week high of $24.52, placing it at roughly 23% of its 52-week range — a positioning that signals weakness rather than momentum, and one that raises the question of whether this is a value opportunity near support or a falling knife given the persistent underperformance. The stock's relative strength of -18.01% over one year and -19.78% year-to-date confirms that capital has been rotating out of this rate-sensitive name and into the broader market. Recent momentum has deteriorated sharply: the 1-month change of -11.33% is far worse than the 3-month change of -5.22% and the 6-month change of +1.25%, indicating that selling pressure has accelerated in September after a mid-year recovery. This divergence — a positive 6-month trend flipping into a steep 1-month decline — suggests the summer rally toward the $23.74 August high has failed and the stock is retesting its lower range, with the 1-month relative strength of -10.37% versus SPY confirming that this is a stock-specific drawdown rather than a market-wide move. The current price of $21.05 is now below the 3-month and 6-month trend anchors, and the absence of short interest (short ratio of 0.0) removes a potential squeeze catalyst. Key technical levels are clearly defined: support rests at the 52-week low of $20.00, just 5.0% below the current price, while resistance sits at the 52-week high of $24.52, roughly 16.5% above. A breakdown below $20.00 would mark a fresh 52-week low and likely trigger momentum-driven selling, whereas a reclaim of the $23.00–$23.50 zone would be needed to signal a genuine trend reversal. With a beta of 1.238, the stock is approximately 24% more volatile than the S&P 500, meaning a 1% market move implies roughly a 1.24% move in NLY — a meaningful consideration for position sizing, particularly given the maximum drawdown of -14.88% already recorded over the past year.
Beta
1.24
1.24x market volatility
Max Drawdown
-14.9%
Largest decline past year
52-Week Range
$20-$25
Price range past year
Annual Return
-0.2%
Cumulative gain past year
| Period | NLY Return | S&P 500 |
|---|---|---|
| 1m | -8.0% | +1.0% |
| 3m | -4.3% | +5.4% |
| 6m | -0.5% | +17.8% |
| 1y | -0.2% | +16.5% |
| ytd | -6.9% | +13.4% |
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NLY Fundamental Analysis
Annaly's revenue trajectory is showing modest but uneven growth, with the most recent quarter (Q1 2026, ended 2026-03-31) generating $1.63 billion in revenue, up 9.58% year-over-year from $1.49 billion in Q1 2025. However, the multi-quarter trend is choppy rather than consistently accelerating: revenue was $1.79 billion in Q2 2025, $1.63 billion in Q3 2025, $1.79 billion in Q4 2025, and $1.63 billion in Q1 2026, indicating a seasonal or spread-driven oscillation around the $1.6–1.8 billion range rather than a durable upward climb. Within the segments, the Agency MBS book remains the dominant revenue driver, while the smaller disclosed segments — Bank Servicing at $27 million and Interests in Mortgage Servicing Rights at $2.9 million — are immaterial to the consolidated top line. The key takeaway is that Annaly's revenue is a function of its asset base and net interest spread rather than organic business growth, so the 9.58% YoY increase reflects a larger investment portfolio (shares outstanding grew from roughly 587 million in Q1 2025 to 723 million in Q1 2026) rather than improving unit economics. Profitability is positive but highly volatile, which is characteristic of mREITs: Q1 2026 net income was $282.7 million with a net margin of 17.3%, a sharp decline from Q4 2025's $1.01 billion net income and 56.7% net margin, and Q3 2025's $832.4 million and 51.1% margin. The gross margin is reported at 98.9% for Q1 2026, but this figure is largely an artifact of how interest expense is classified below the gross profit line — the more meaningful profitability metric is the operating margin of 95.8% and the net income ratio of 17.3%, which reflects the heavy $1.27 billion interest expense burden in the quarter. The quarter-over-quarter collapse in net income from $1.01 billion to $282.7 million illustrates the extreme sensitivity of earnings to MBS spread widening and hedging costs, and with a payout ratio of 92.8% and a dividend yield of 13.2%, the company is distributing nearly all of its earnings, leaving minimal retained capital for organic growth. The balance sheet is highly levered, as is typical for the sector: debt-to-equity stands at 6.95x, the debt ratio is 84.4%, and the current ratio is a very thin 0.035, reflecting the fact that mREIT liquidity is managed through repo funding and asset sales rather than working capital. Free cash flow is deeply negative on a trailing basis at -$1.58 billion, and Q1 2026 operating cash flow was -$1.40 billion, driven by $6.23 billion of investment purchases against $6.77 billion of sales and maturities — a reflection of active portfolio repositioning rather than operational distress. ROE of 12.6% and ROA of 2.3% are respectable for a levered mREIT, but the company's growth is funded externally: it issued $489 million of common stock in Q1 2026 and $565 million in Q4 2025, and paid $536 million in dividends in Q1 2026 alone. The combination of a 6.95x debt-to-equity ratio, negative free cash flow, and a payout ratio approaching 93% means Annaly is structurally dependent on capital markets access to sustain both its portfolio and its dividend, which is the central financial risk in the investment case.
Quarterly Revenue
$1.6B
2026-03
Revenue YoY Growth
+9.6%
YoY Comparison
Gross Margin
98.9%
Latest Quarter
Free Cash Flow
$-1.6B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is NLY Overvalued?
Because Annaly is profitable — trailing net income is positive with a trailing EPS of $0.14 and Q1 2026 net income of $282.7 million — the PE ratio is the appropriate primary metric, though for mREITs the price-to-book ratio is arguably more informative given that earnings are mark-to-market driven. The trailing PE stands at 7.66x while the forward PE is 6.77x, a modest 12% compression that implies the market expects only slight earnings growth, consistent with consensus EPS estimates of $3.02 for the forward period. The price-to-book ratio of 0.89x is the more telling figure: the stock trades below book value, which for a mortgage REIT signals that the market is discounting the carrying value of the investment portfolio, likely due to unrealized losses on agency MBS in a higher-rate environment. Peer comparison is constrained by the absence of a sector-average multiple in the provided valuation data, but the broader mREIT universe (including AGNC and similar agency-focused peers) typically trades in a 0.8x–1.1x book value band, placing Annaly's 0.89x P/B in the middle-to-lower portion of that range. The PS ratio of 2.14x and EV/EBITDA of 18.06x are less meaningful for a leveraged financial, while the PEG ratio of 0.095 is distorted by the low earnings base and should not be relied upon. Relative to its own history, Annaly's valuation is mixed: the current P/B of 0.89x is above the 0.83x–0.84x levels seen in mid-2024 and Q3 2025 but below the 0.94x–0.96x readings in Q1 2026 and Q4 2025, suggesting the stock has de-rated over the past two quarters as the price fell from the mid-$23s to $21.05. The trailing PE of 7.66x is elevated relative to the 3.99x–4.18x readings in Q4 2025 and Q3 2025, but that is a function of the earnings decline rather than multiple expansion — the stock is cheaper on price but more expensive on depressed earnings. The dividend yield of 13.2% is near the high end of its recent historical range (which has oscillated between roughly 3.4% and 4.7% on a quarterly reported basis in the historical ratios data, though the current 13.2% figure reflects a different calculation basis), and a yield this high typically signals the market is pricing in either a dividend cut or a sustained period of book value erosion.
PE
7.7x
Latest Quarter
vs. Historical
Low-End
5-Year PE Range 1x~34x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
18.1x
Enterprise Value Multiple
Investment Risk Disclosure
Annaly's financial and operational risks are dominated by its extreme leverage and earnings volatility. Debt-to-equity stands at 6.95x with a debt ratio of 84.4%, meaning a modest decline in asset values could erode a significant portion of equity. The current ratio of 0.035 reflects the mREIT model's reliance on repo funding rather than working capital, and free cash flow is deeply negative at -$1.58 billion on a trailing basis. Most critically, Q1 2026 net income of $282.7 million (17.3% net margin) collapsed from $1.01 billion (56.7% margin) in Q4 2025, illustrating how quickly earnings can deteriorate when MBS spreads widen or hedging costs rise. With a payout ratio of 92.8%, there is virtually no retained capital to absorb losses, making the dividend vulnerable to any sustained earnings decline.
Market and competitive risks center on the stock's high sensitivity to interest rates and its premium valuation relative to its own history. The beta of 1.238 means NLY is approximately 24% more volatile than the S&P 500, so a 1% market decline implies a 1.24% drop in NLY, amplifying drawdowns. The stock has underperformed the S&P 500 by 18.01% over one year and 19.78% year-to-date, and the recent 1-month decline of -11.33% versus SPY's -0.96% shows a stock-specific sell-off driven by rate fears. Recent news about a potential Kevin Warsh-led Fed and balance sheet reduction creates near-term pressure on mREIT book values and spread income, while competitive threats from alternative income vehicles like Main Street Capital (which has delivered 360% total return over the past decade versus Annaly's underperformance) could continue to divert capital away from the sector.
In a worst-case scenario, a combination of further Fed balance sheet reduction, widening agency MBS spreads, and a dividend cut could drive NLY to its 52-week low of $20.00, representing a 5.0% decline from the current $21.05. However, a more severe outcome—such as a liquidity crisis or a forced asset sale at distressed prices—could push the stock below its 52-week low toward the analyst low target of $22.50 (which is above the current price, so not a downside scenario) or lower. Given the maximum drawdown of -14.88% over the past year, a realistic adverse scenario could see NLY fall 15-20% from current levels to the $17-18 range, especially if the dividend is cut and the 13.2% yield compresses. This would represent a loss of $3-4 per share from the current price, or roughly -15% to -20%.
FAQ
The most severe risk is a dividend cut, given the 92.8% payout ratio and Q1 2026 net income of $282.7 million, which is down 72% from Q4 2025. A cut would likely trigger a sharp sell-off and compress the yield. Second is interest rate and spread risk: the 6.95x debt-to-equity ratio and 84.4% debt ratio mean that widening agency MBS spreads directly erode book value, and the beta of 1.238 amplifies market downturns. Third is liquidity risk, as the current ratio of 0.035 and negative $1.58 billion free cash flow reflect reliance on repo funding and capital markets access; a credit freeze could force asset sales at distressed prices. Fourth is competitive risk, as alternative income vehicles like Main Street Capital have delivered superior total returns (360% over the past decade) and could continue to divert capital away from mREITs. These risks are ranked in order of severity, with the dividend cut being the most immediate threat.
The 12-month forecast is based on three scenarios: a bull case (25% probability) targeting $24.50-$25.00 if the Fed pauses balance sheet reduction and earnings rebound; a base case (50% probability) targeting $22.50-$24.23 if rates remain range-bound and the dividend is maintained; and a bear case (25% probability) targeting $20.00-$22.50 if a dividend cut occurs or spreads widen further. The base case is most likely, assuming the Fed holds rates steady and Annaly's net income oscillates between $300 million and $600 million per quarter. The key assumption behind the base case is that the payout ratio stays between 90% and 100%, allowing the dividend to be maintained. The analyst consensus average target of $24.23 aligns with the upper end of the base case, implying 15.1% upside from the current $21.05.
NLY appears fairly valued to slightly undervalued on a price-to-book basis, trading at 0.89x compared to its recent range of 0.83x-0.96x. The trailing PE of 7.66x and forward PE of 6.77x are low in absolute terms, but this reflects depressed earnings rather than a deep value opportunity—the trailing PE is actually elevated relative to the 3.99x-4.18x readings in Q4 2025 and Q3 2025 because earnings have fallen. The 13.2% dividend yield is near the high end of its historical range, which typically signals the market is pricing in a dividend cut or book value erosion. Compared to mREIT peers like AGNC, which typically trade in a 0.8x-1.1x book value band, NLY is in the middle-to-lower portion. The market is paying a discount to book value, implying it expects further unrealized losses on the agency MBS portfolio, but if spreads stabilize, the stock could re-rate toward 1.0x book, implying 12% upside.
From a risk/reward perspective, NLY offers a 15.1% upside to the analyst average target of $24.23 and a 13.2% dividend yield, but the downside risk is equally significant given the 92.8% payout ratio and negative $1.58 billion free cash flow. The stock trades at 0.89x book value, which is below its recent historical range of 0.94x-0.96x, suggesting some margin of safety, but the 72% quarter-over-quarter earnings decline in Q1 2026 shows how quickly conditions can deteriorate. For income-focused investors with a high risk tolerance and a long time horizon, NLY can be a good buy at current levels, especially if the Fed pauses its balance sheet reduction. However, for conservative investors or those needing capital preservation, the dividend cut risk and 1.238 beta make it a less suitable choice. A staggered entry approach, buying in tranches near $20-21, would help manage the volatility.
NLY is better suited for long-term income-focused investors than short-term traders, given its 13.2% dividend yield and the fact that its total return is heavily dependent on dividend reinvestment. The stock's beta of 1.238 and maximum drawdown of -14.88% over the past year make it too volatile for short-term trading unless one is actively hedging rate risk. The earnings visibility is low—net income swung from $1.01 billion in Q4 2025 to $282.7 million in Q1 2026—so timing entry points is difficult. A minimum holding period of 2-3 years is recommended to ride out rate cycles and capture the dividend, which is the primary source of return. Short-term traders could exploit the range between $20.00 support and $24.52 resistance, but this requires active monitoring and a higher risk tolerance. For most investors, NLY should be a long-term satellite holding in an income portfolio.