Annaly Capital Management (NLY)

Mortgage finance REIT Annaly Capital Management (NYSE:NLY) announced better-than-expected revenue in Q3 CY2025, with sales up 637% year on year to $885.6 million. Its GAAP profit of $1.20 per share was 5.9% above analysts’ consensus estimates.

Company Overview

Operating as a real estate investment trust since 1996 with a focus on generating income from interest rate spreads, Annaly Capital Management (NYSE:NLY) is a diversified capital manager that invests in agency mortgage-backed securities, residential mortgage loans, and mortgage servicing rights.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

Annaly's main competitors include other mortgage REITs such as AGNC Investment Corp (NASDAQ:AGNC), Starwood Property Trust (NYSE:STWD), and New Residential Investment Corp (NYSE:NRZ), as well as diversified REITs and financial institutions that invest in mortgage-backed securities.

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Annaly Capital Management struggled to consistently generate demand over the last five years as its revenue dropped at a 22% annual rate. This wasn’t a great result, but there are still things to like about Annaly Capital Management.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Annaly Capital Management’s annualized revenue growth of 369% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Annaly Capital Management reported magnificent year-on-year revenue growth of 637%, and its $885.6 million of revenue beat Wall Street’s estimates by 7.2%.

Net interest income made up 54.7% of the company’s total revenue during the last five years, meaning Annaly Capital Management’s growth drivers strike a balance between lending and non-lending activities.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Annaly Capital Management’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Annaly Capital Management, its two-year annual EPS growth of 56.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Annaly Capital Management reported EPS of $1.20, up from $0.05 in the same quarter last year. This print beat analysts’ estimates by 5.9%. Over the next 12 months, Wall Street expects Annaly Capital Management’s full-year EPS of $2.16 to grow 47%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Annaly Capital Management’s TBVPS declined at a 10.3% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 4.7% annually over the last two years from $18.22 to $19.96 per share.

Over the next 12 months, Consensus estimates call for Annaly Capital Management’s TBVPS to shrink by 4.6% to $19.05, a sour projection.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Annaly Capital Management has averaged an ROE of 7.3%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

We were impressed by how significantly Annaly Capital Management blew past analysts’ revenue expectations this quarter despite a net interest income miss. EPS also beat. Zooming out, we think this was a mixed quarter. The stock remained flat at $21.31 immediately after reporting.

Updated: December 4, 2025 at 11:44 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Annaly Capital Management.

We see the value of companies driving economic growth, but in the case of Annaly Capital Management, we’re out. To kick things off, its revenue has declined over the last five years. On top of that, Annaly Capital Management’s TBVPS has declined over the last five years, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

Annaly Capital Management’s P/B ratio based on the next 12 months is 1.2x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $22.10 on the company (compared to the current share price of $22.82), implying they don’t see much short-term potential in Annaly Capital Management.