Annaly Capital Management
NLY
$18.34
+1.83%
Annaly Capital Management is a mortgage real estate investment trust that invests primarily in Agency residential mortgage-backed securities, alongside non-Agency residential whole loans and securitized products, mortgage servicing rights, and a smaller middle-market lending book, operating within the specialized mortgage REIT industry. As one of the largest and most liquid names in the mREIT universe, Annaly functions as a leveraged spread-harvesting platform rather than a conventional property owner, with its scale, agency MBS financing relationships, and diversified capital allocation across Agency, Residential Credit, and MSR segments defining its competitive identity. The current investor debate centers on the trajectory of Federal Reserve policy and the shape of the yield curve, with recent commentary around a potential Kevin Warsh-led Fed and balance sheet reduction pressuring mREIT valuations even as wider mortgage spreads create reinvestment opportunity. That macro tension, combined with a double-digit dividend yield and a book-value discount, frames the stock as a high-carry, rate-sensitive income vehicle whose near-term return hinges on financing costs and spread stability rather than organic business growth.…
NLY
Annaly Capital Management
$18.34
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Investment Opinion: Should I buy NLY Today?
The synthesized recommendation is Hold. Annaly offers a compelling 13.16% dividend yield and trades at a 0.889x price-to-book discount, but the technical breakdown, negative free cash flow, and extreme leverage warrant caution. The analyst consensus is Buy with an average target of $23.36, implying 28.2% upside, but these targets may be stale given the recent price decline. The core thesis is that the stock is cheap for identifiable reasons—financing cost risk and the absence of a rate-cut catalyst—and income investors are being compensated for that risk with a high yield.
The supporting evidence is mixed. On the positive side, the forward PE of 5.87x is low, the PEG ratio of 0.095 suggests undervaluation relative to growth, and the dividend yield of 13.16% is well above the sector average. Revenue grew 24.91% year-over-year in Q2 2026, and net income of $822.7 million represents a 36.8% net margin. However, free cash flow is negative $314.4 million, interest coverage is only 1.63x, and the payout ratio of 92.8% leaves little room for error. The stock's 0.889x price-to-book is a discount but not deeply undervalued relative to its historical range of 0.68x-0.97x.
The biggest risks are a further rise in financing costs, a dividend cut, and a break below the 52-week low of $17.76. The rating would upgrade to Buy if the stock reclaims the $20.30-$20.60 resistance zone and financing costs stabilize, or if the Fed signals a pause in balance sheet reduction. It would downgrade to Sell if the dividend is cut or if book value per share declines significantly. Relative to its history and peers, NLY appears fairly valued to slightly undervalued, but the high yield is compensation for real risks. This is not a screaming buy, but for income-focused investors with a tolerance for volatility, it may be worth holding for the dividend.
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NLY 12-Month Price Forecast
The forward-looking view is neutral with medium confidence. Annaly's valuation is not demanding at 0.889x book and 5.87x forward earnings, and the 13.16% yield is attractive for income investors. However, the technical downtrend, negative free cash flow, and extreme leverage suggest the risk/reward is balanced rather than skewed to the upside. The key tension is between the high yield and the risk of a dividend cut if financing costs rise. I would upgrade to bullish if the stock reclaims $20.30-$20.60 and financing costs stabilize, or if the Fed signals a pause in balance sheet reduction. I would downgrade to bearish if the dividend is cut or if book value per share declines significantly.
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 $21.68 and implied upside of +18.2% versus the current price.
Average Target
$21.68
0 analysts
Implied Upside
+18.2%
vs. current price
Analyst Count
—
covering this stock
Price Range
$20 - $25
Analyst target range
Coverage is solid for a mid-cap mREIT, with 11 analysts and a consensus recommendation of Buy (mean rating of 1.92 on a scale where 1 is Strong Buy). The average target price of $23.36 implies roughly 28.2% upside from the current $18.23, a wide gap that reflects either significant undervaluation or stale targets set before the September breakdown. The consensus leans bullish, with the institutional ratings history showing repeated Overweight ratings from JP Morgan, Wells Fargo, and Piper Sandler through July 2026 and an Outperform from RBC in June, while UBS has stayed Neutral since April, indicating that the bullish case is well represented but not unanimous.
The target range of $21.00 to $25.00 is moderately wide, about 19% around the midpoint, signaling meaningful disagreement about the path of spreads and book value. The $25.00 high target likely assumes multiple expansion toward book value, wider mortgage spreads, and a favorable Fed pivot that lowers financing costs, while the $21.00 low target prices in persistent funding pressure and limited book value accretion. Notably, the consensus EPS estimate of $3.03 (range $2.71 to $3.36) is far above trailing EPS of $0.14, which suggests analysts are modeling core earnings rather than GAAP results and that the current price embeds substantial skepticism about that earnings recovery. With no downgrades in the recent ratings history, the risk is less about deteriorating analyst sentiment and more about targets lagging a price that has already broken down technically.
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Bulls vs Bears: NLY Investment Factors
The bear case currently has stronger evidence: NLY is in a severe technical downtrend, down 20.39% YTD and sitting just 6.9% above its 52-week low, with negative free cash flow and extreme leverage of 6.95x debt-to-equity. However, the bull case is not without merit, as the stock trades at a 0.889x price-to-book discount and offers a 13.16% dividend yield, with analysts maintaining a Buy consensus and a $23.36 average target. The single most important tension is the trajectory of Federal Reserve policy and the shape of the yield curve: if financing costs stabilize or decline, the discount to book and high yield could drive a sharp recovery; if rates stay higher for longer or the Fed accelerates balance sheet reduction, book value and dividend coverage could come under further pressure. The recent price action suggests the market is pricing in the bear case, but the analyst targets have not yet been revised downward, creating a disconnect that will resolve one way or the other in the coming quarters.
Bullish
- Deep discount to book value: NLY trades at 0.889x price-to-book, meaning investors can buy $1 of net assets for about $0.89. This discount is near the upper end of its historical 0.68x-0.97x range, suggesting the market is not yet pricing severe book-value impairment.
- Double-digit dividend yield: The 13.16% dividend yield is well above the sector's typical high-single-digit to low-double-digit range, offering substantial income even if price appreciation stalls. With a payout ratio of 92.8%, the dividend is covered by earnings, though with little margin for error.
- Analyst consensus and target upside: 11 analysts rate NLY a Buy with a mean rating of 1.92 and an average target price of $23.36, implying 28.2% upside from $18.23. The target range of $21-$25 suggests most analysts see the recent selloff as overdone.
- Earnings rebound and forward multiple: Q2 2026 EPS of $1.07 rebounded sharply from $0.032 in Q2 2025, and the forward PE of 5.87x versus trailing 7.66x implies the market expects roughly 30% earnings growth. Consensus EPS of $3.03 for the next twelve months, if achieved, would make the stock look very cheap.
Bearish
- Severe technical breakdown: NLY is down 20.39% year-to-date and 14.13% over the past month, sitting just 6.9% above its 52-week low of $17.76. The September 30 gap from $20.32 to $18.89 broke key support and has not been recovered, with the stock in a clear lower-highs, lower-lows downtrend.
- Extreme leverage and thin interest coverage: Debt-to-equity stands at 6.95x with total debt to capitalization at 88.1%, and interest coverage is only 1.63x. With $1.324 billion in quarterly interest expense against $1.812 billion in interest income, a modest rise in funding costs could wipe out earnings.
- Negative free cash flow and high payout ratio: Trailing free cash flow is negative $314.4 million, and the 92.8% payout ratio leaves essentially no retained capital. The dividend is barely covered by earnings, and any deterioration in spread income could force a dividend cut.
- Earnings volatility and mark-to-market dependence: Net margin has swung from 3.2% in Q2 2025 to 56.7% in Q4 2025 and back to 36.8% in Q2 2026, showing earnings are highly sensitive to rate moves. The Q2 2026 revenue jump to $2.235 billion was driven by wider spreads and mark-to-market gains, not structural growth.
NLY Technical Analysis
Annaly is in a clear, sustained downtrend, with the shares down 11.12% over the past year and 20.39% year-to-date, and the current price of $18.23 sits at just 6.9% of the 52-week range between a $17.76 low and $24.52 high. That positioning near the bottom of the annual range is characteristic of a falling knife rather than a value entry, and the stock has surrendered roughly 26.5% at its maximum drawdown, underscoring how persistent the selling pressure has been. The inability to hold the mid-$20s during the summer rally has left the chart in a lower-highs, lower-lows structure that only a decisive reclaim of the $20 area would begin to repair.
Short-term momentum is decisively negative and accelerating to the downside: the stock is down 14.13% over the past month and 20.77% over three months, meaning the recent leg lower is steeper than the six-month decline of 20.04%. This is not a benign pullback within an uptrend but a fresh breakdown, with the September 30 gap from $20.32 to $18.89 marking a clear loss of support that has not been recovered. Relative strength confirms the divergence, with NLY trailing the S&P 500 by 15.35 percentage points over one month and 26.65 points over one year while SPY gained 1.22% and 15.53% respectively, signaling that capital is rotating away from rate-sensitive leveraged carry trades rather than simply de-risking broadly.
Key technical levels are now well defined: the $17.76 52-week low is the last line of defense, and a breakdown below it would likely trigger momentum-driven selling and open the door to the high-teens or lower, while resistance sits at the $20.30-$20.60 shelf that failed in late September, followed by the $24.52 annual high. A beta of 1.278 means the stock is roughly 28% more volatile than the market, so position sizing should account for amplified drawdowns in a risk-off tape. With a short ratio of 2.21 and volume near 9.76 million shares, there is no meaningful short-squeeze fuel, and the path of least resistance remains lower until price reclaims the broken support zone.
Beta
1.28
1.28x market volatility
Max Drawdown
-27.4%
Largest decline past year
52-Week Range
$18-$25
Price range past year
Annual Return
-13.9%
Cumulative gain past year
| Period | NLY Return | S&P 500 |
|---|---|---|
| 1m | -14.5% | -1.2% |
| 3m | -18.3% | +3.4% |
| 6m | -19.4% | +7.0% |
| 1y | -13.9% | +14.4% |
| ytd | -19.9% | +12.0% |
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NLY Fundamental Analysis
Revenue has been highly volatile but is trending higher on a year-over-year basis, with Q2 2026 revenue of $2.235 billion representing 24.91% growth versus the prior-year quarter and a sharp rebound from Q1 2026's $1.630 billion. The sequential jump was accompanied by net income of $822.7 million and diluted EPS of $1.07, a dramatic improvement from Q2 2025's $57.1 million of net income and $0.032 EPS, reflecting wider asset spreads and mark-to-market gains rather than a structural change in the business model. The multi-quarter pattern, from $1.788 billion in Q2 2025 to $1.630 billion in Q3 2025, $1.788 billion in Q4 2025, $1.630 billion in Q1 2026, and $2.235 billion in Q2 2026, shows that reported revenue is dominated by portfolio marks and interest income swings, so the investment case rests on spread capture and book value preservation rather than a smooth top-line growth curve.
Profitability is robust at the accounting level, with Q2 2026 net income of $822.7 million, a 36.8% net margin, and a gross margin of 99.2% that is typical of a financial intermediary whose cost of revenue is minimal relative to interest income of $1.812 billion. However, the more telling figure is the 1.63x interest coverage ratio, which shows how thin the spread is between the $1.324 billion of quarterly interest expense and the income generated on the asset base, leaving little cushion if funding costs rise. The margin trajectory has been uneven, with net margin swinging from 3.2% in Q2 2025 to 51.1% in Q3 2025, 56.7% in Q4 2025, 17.3% in Q1 2026, and 36.8% in Q2 2026, confirming that earnings quality is highly sensitive to rate moves and that the headline profitability overstates the durability of the earnings stream.
The balance sheet is the central risk: debt-to-equity stands at 6.95x, total debt to capitalization is 88.1%, and the current ratio of 0.035 reflects a funding model built on secured repo financing rather than liquidity buffers. Free cash flow is negative $314.4 million on a trailing basis, and the Q1 2026 operating cash outflow of $1.401 billion versus the Q2 2026 inflow of $1.619 billion illustrates how cash generation swings with portfolio repositioning and $8.83 billion of quarterly investment purchases. ROE of 12.6% and ROA of 2.33% are respectable for a leveraged mREIT, but with a payout ratio of 92.8% and a 13.16% dividend yield, the dividend is barely covered by earnings and leaves essentially no retained capital, meaning book value accretion depends entirely on spread income and prudent leverage management.
Quarterly Revenue
$2.2B
2026-06
Revenue YoY Growth
+24.9%
YoY Comparison
Gross Margin
99.2%
Latest Quarter
Free Cash Flow
$-314438000.0B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is NLY Overvalued?
Because Annaly is profitable, with trailing EPS of $0.142 and net income of $822.7 million in the latest quarter, the PE ratio is the appropriate primary metric, and the trailing PE of 7.66x versus a forward PE of 5.87x implies the market expects earnings to grow roughly 30% over the next twelve months. That gap is meaningful for an mREIT, since it prices in either a wider spread environment or a normalization of mark-to-market results, and the forward multiple of 5.87x is low in absolute terms but consistent with the sector's structurally discounted earnings. The PEG ratio of 0.095 and price-to-book of 0.889 suggest the market is valuing the franchise below its net asset base, a classic signal of skepticism about book value durability.
Against the mortgage REIT peer group, the 0.889x price-to-book is a discount to book but broadly in line with where agency-focused mREITs typically trade, while the 2.14x price-to-sales and 43.2x EV-to-sales are distorted by the leverage embedded in the balance sheet and are not useful comparative anchors. The more relevant comparison is the 13.16% dividend yield versus the sector's typical high-single-digit to low-double-digit range, which represents a premium yield that compensates investors for above-average leverage of 6.95x debt-to-equity and thin 1.63x interest coverage. On a risk-adjusted basis, the discount to book and the elevated yield are consistent with a name that is cheap for identifiable reasons, namely financing cost risk and the absence of a rate-cut catalyst.
Historically, Annaly's PE has ranged from negative territory during loss quarters to 5.2x in Q2 2026, 16.0x in Q1 2026, and 147x in the depressed Q2 2025 period, so the current 7.66x trailing multiple sits in the middle of a very wide band rather than at an extreme. Its price-to-book history shows a range from roughly 0.68x in Q3 2022 to 0.97x in Q2 2026, and the current 0.889x is closer to the upper end of that band despite the recent price decline, implying the market is not yet pricing a severe book-value impairment. The combination of a mid-range PE and a high-end P/B suggests the stock is neither a deep-value opportunity nor egregiously expensive, but rather fairly priced for a leveraged vehicle whose earnings power is hostage to the rate cycle.
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
18.0x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks are substantial for Annaly given its highly leveraged business model. Debt-to-equity of 6.95x and total debt to capitalization of 88.1% mean that a small decline in asset values can wipe out a large portion of equity. Interest coverage of only 1.63x leaves little cushion if funding costs rise, and the current ratio of 0.035 reflects a reliance on secured repo financing rather than liquidity buffers. Negative trailing free cash flow of $314.4 million and a 92.8% payout ratio mean the dividend is barely covered and there is no retained capital to absorb shocks. Earnings are highly volatile, with net margin swinging from 3.2% to 56.7% over the past year, and revenue is dominated by mark-to-market swings rather than stable spread income.
Market and competitive risks are equally pressing. NLY's beta of 1.278 means it is about 28% more volatile than the market, so drawdowns are amplified in risk-off environments. The stock has underperformed the S&P 500 by 26.65 percentage points over the past year, reflecting a sector rotation away from rate-sensitive leveraged carry trades. Valuation compression is a risk: while the 0.889x price-to-book is a discount, it is near the upper end of its historical range, implying the market has not yet priced a severe book-value impairment. Recent news about a potential Kevin Warsh-led Fed and balance sheet reduction creates near-term valuation pressure, as higher rates and quantitative tightening could widen spreads but also increase financing costs and depress book values. Competition from other mREITs and alternative income vehicles could also pressure yields.
The worst-case scenario would be a combination of rising funding costs, widening mortgage spreads that impair book value, and a dividend cut. If the Fed keeps rates higher for longer or accelerates balance sheet reduction, Annaly's net interest income could compress, forcing a reduction in the dividend and triggering further selling. The stock is already down 26.52% from its peak, and a break below the 52-week low of $17.76 could open the door to the high-teens or lower. From the current price of $18.23, a decline to the 52-week low represents a 2.6% loss, but a more severe scenario could see the stock fall to the $15-$16 range, implying a 12-18% downside. The analyst low target of $21.00 is above the current price, but if fundamentals deteriorate, targets could be revised downward.
FAQ
The most severe risk is financial: 6.95x debt-to-equity and 1.63x interest coverage mean a rise in financing costs could quickly erode earnings and book value. Second, dividend risk: the 92.8% payout ratio leaves little cushion, and a cut would likely trigger a sharp selloff. Third, market risk: beta of 1.278 means the stock is more volatile than the market, and it has underperformed the S&P 500 by 26.65 percentage points over the past year. Fourth, company-specific risk: negative free cash flow of $314.4 million and reliance on repo financing create liquidity concerns. These risks are ranked in order of severity, with financial leverage being the most critical.
Our 12-month forecast has three scenarios. The base case (50% probability) sees the stock trading between $18 and $21, assuming stable financing costs and no dividend cut. The bull case (25% probability) targets $23.36-$25.00 if the Fed pauses balance sheet reduction and spreads remain wide. The bear case (25% probability) targets $15-$17.76 if financing costs spike and the dividend is cut. The most likely scenario is the base case, with the key assumption that the Fed does not accelerate tightening. However, given the recent technical breakdown, the risk is skewed to the downside in the near term.
NLY appears fairly valued to slightly undervalued. The price-to-book ratio of 0.889x means the stock trades below its net asset value, which is a discount, but it is near the upper end of its historical range of 0.68x-0.97x. The trailing PE of 7.66x and forward PE of 5.87x are low in absolute terms, but typical for mortgage REITs. The PEG ratio of 0.095 suggests undervaluation relative to expected growth. However, the 13.16% dividend yield is high, which often signals market skepticism about sustainability. Overall, the market is pricing in risks such as financing cost pressure and potential book value erosion, so the stock is not deeply undervalued but offers a fair price for the risk.
Whether NLY is a good buy depends on your investment goals and risk tolerance. The stock offers a 13.16% dividend yield and trades at a 0.889x price-to-book discount, with analysts projecting 28.2% upside to their average target of $23.36. However, the company carries 6.95x debt-to-equity, has negative free cash flow of $314.4 million, and the dividend is barely covered with a 92.8% payout ratio. The technical trend is negative, with the stock down 20.39% year-to-date and near its 52-week low. For income investors who can withstand volatility and are comfortable with leverage, it may be a good buy for the yield. For growth or conservative investors, it is likely not suitable.
NLY is more suitable for long-term income-focused investors than short-term traders. The stock's beta of 1.278 and recent 26.52% max drawdown make it too volatile for short-term trading unless you are a skilled technician. The 13.16% dividend yield is the main attraction, and dividends compound over time, but the dividend is not guaranteed and could be cut. For long-term holding, a minimum period of 3-5 years is suggested to ride out rate cycles. Short-term traders might find opportunities around earnings or Fed announcements, but the risk of further downside is significant. Overall, it is best suited for a small allocation in a diversified income portfolio.