Annaly Capital Management, Inc.

Based on a comprehensive analysis, Annaly Capital Management (NLY) presents a high-risk, high-potential profile that may appeal to a specific type of investor.

Technical & Fundamental Outlook Technically, NLY shows recent strength, outperforming the market over the last quarter despite a slight pullback. Fundamentally, it generates strong revenue but faces profitability compression and operates with high leverage, making it highly sensitive to interest rate changes. This combination results in significant volatility, as seen in its substantial historical drawdowns.

Valuation & Risk From a valuation perspective, NLY appears fundamentally cheap, with exceptionally low P/E ratios suggesting the market prices it at a deep discount to its earnings. The primary risk is not short-selling pressure but macroeconomic exposure; its business model is inherently vulnerable to shifts in interest rates and credit markets, which can dramatically impact profitability and stock price.

Buy Recommendation NLY is a speculative buy only for risk-tolerant investors who have a strong bullish outlook on interest rate stability or declines. The stock's deeply discounted valuation offers significant upside potential if macroeconomic conditions remain favorable. However, investors must be prepared for substantial volatility and understand that its performance is directly tied to complex interest rate dynamics. This is not a suitable investment for those seeking stability or with a low risk tolerance.

RockFlow Model Forecast: Three Scenarios for 2026

Based on the comprehensive analysis provided, here is a 12-month outlook for Annaly Capital Management (NLY):

The primary catalyst for NLY will be a favorable shift in the interest rate environment, specifically stability or cuts from the Federal Reserve, which would ease pressure on its net interest margin and likely lead to a significant re-rating of its deeply discounted valuation. Conversely, the major risk remains a resurgence of inflation forcing the Fed to maintain or raise rates, which would compress profitability and likely cause substantial price volatility and potential downside. Given the absence of a consensus analyst target price, a target range is speculative; however, success on the interest rate front could propel the stock toward the $25-$28 range, while adverse rate movements could see it test support levels near $18-$20. Overall, performance will be almost entirely dictated by macroeconomic policy rather than company-specific operational improvements.

Wall Street Consensus

Most Wall Street analysts are optimistic about Annaly Capital Management, Inc.'s 12-month outlook, with consensus target around $22.98, indicating expected upside potential.

Overall, NLY has investment potential but also faces challenges. Here are key factors to weigh before investing.

NLY has delivered mixed performance with notable recovery momentum over the past year. The stock has outperformed the market over the recent quarterly period while showing higher volatility than the broader market, as indicated by its beta above 1.3.

Short-term performance shows modest declines over the past month (-3.57%) but strong quarterly gains (+4.45%), significantly outpacing the market with 4.47% outperformance. This recent strength suggests resilience despite the minor monthly pullback from recent highs.

Currently trading near the upper end of its 52-week range (16.60-24.52), NLY sits approximately 6% below its annual high. The steep maximum drawdown of -21.22% highlights the stock's higher volatility nature, though it now trades closer to recent resistance levels than oversold territory based on historical price action.

Revenue & Profitability: NLY exhibits strong revenue generation with $2.94 billion in Q4 2025, though profitability metrics show compression. The net profit margin of 34.5% is solid but represents a decline from the 51.1% margin reported in Q3, indicating potential pressure on earnings spread. This suggests that while top-line performance is robust, net income conversion has become less efficient quarter-over-quarter.

Financial Health: The company maintains a high degree of leverage with a debt-to-equity ratio of 6.95, which is characteristic of mortgage REITs but adds significant interest rate risk. The interest coverage ratio of 1.76 indicates modest earnings protection for interest obligations, while the current ratio of 0.03 reveals very limited liquidity, reflecting the capital-intensive nature of its investment portfolio.

Operational Efficiency: NLY demonstrates moderate efficiency with a return on equity of 6.3%, though asset turnover is low at 0.02, typical for a leveraged mortgage portfolio. The company's operational model relies heavily on leverage to generate returns, as evidenced by the high equity multiplier of 8.43, which amplifies both returns and risks in its investment strategy.

Based on the provided metrics, NLY appears fundamentally undervalued. Its exceptionally low trailing and forward PE ratios, which are significantly below typical market averages, suggest the market is pricing the stock at a substantial discount to its current and near-term earnings. The price-to-book ratio near parity and a PEG ratio well below 1 further support this view, indicating the stock is reasonably priced relative to its assets and offers compelling value when accounting for its earnings growth potential.

A peer comparison cannot be conclusively drawn without industry average data. However, the forward PE ratio of approximately 3.8 appears exceptionally low for any sector, strongly suggesting NLY trades at a significant discount relative to broader market valuations. The high EV/EBITDA ratio is an outlier that warrants further investigation into the company's capital structure and depreciation/amortization policies compared to its peers to fully contextualize the valuation.

Volatility Risk: NLY exhibits moderate-to-high volatility risk, evidenced by its beta of 1.302, implying it is approximately 30% more volatile than the broader market. This elevated sensitivity is further confirmed by a significant one-year maximum drawdown of -21.22%, highlighting substantial price depreciation potential during market downturns.

Other Risks: While a negligible short interest percentage suggests limited bearish sentiment from short sellers, the primary risk for this mortgage REIT is liquidity and interest rate sensitivity. As a company heavily reliant on leveraging mortgage-backed securities, its performance is acutely vulnerable to shifts in interest rates and credit spreads.