Analyst Bomb Toss

Yesterday NLY (Annaly) hit a major air pocket when the analyst at Bank of America – Merrill announced a $15.75 per share price target.  That tends to happen when a big national brokerage picks a price target nearly 20% under the current price.

I’m quite sure the analyst had to turn off his computer and hide in the bunker as the trading day proceeded.  After all, the stock was trading near $18.80 a share near the close on Monday, and it printed one trade at $18.01 in the first half hour of Tuesday’s trading.

The unique thing about these income stocks is the nature of their investors.

As a government-guaranteed bond fund in drag, Annaly appeals to retirees and near-retirees.  These are the kind of people that take their stocks and net worth personally.  And they pay attention.

For the tech world, a 2% decline in value wouldn’t rate a raised eyebrow.  In the amREIT investor universe, 2% decline on an analysts report probably triggered dozens or even hundreds of phone calls and e-mails, not a few of which questioned everything from the analysts’ intelligence to his ancestry and his patriotism.

Today, the RBC analyst let loose with an air burst above the Merrill bunker, announcing a $23 price target for the same stock.  My guess is that the Merrill analyst is having his second bad day in a row.

And you thought bonds were boring!

After all, the ostensible reason for an income investor to own stocks is to get income, and we can be absolutely sure that nothing in the last three days moved the NLY future income needle even a tiny quiver.

So far, at least, it looks like the Merrill bomb thrower lofted a dud.  The stock has basically recovered, trading as high as $18.71 ninety minutes into today’s session.

As far as the stock goes, I own it, and I didn’t sell when it hit $18.50 on the way up, but I thought about it.  As the longest duration portfolio in the group, NLY is the most exposed to an increase in longer term interest rates, so I will be watching for signs of weakness, especially because it is trading at a premium to book value.

Still, today’s premium is nothing like the sky-high multiple NLY and the others hit during the Greenspan years, so the downside isn’t nearly as bad as the 50% shellacking NLY holders took on their stock prices from following Jim Cramer and Herb Greenberg’s tag team pumping back in 2004.

Disclosure:  I’m not a Merrill (or RBC) client, so I haven’t read either report.  As Will Rogers famously said “All I know is just what I read in the papers.”



2 Responses to Analyst Bomb Toss

  1. You say: “As the longest duration portfolio in the group, NLY is the most exposed to an increase in longer term interest rates”.

    I would appreciate if you were to list the companies you follow from the most exposed to the less exposed.

    Discl. I own plenty of NLY and weighting a purchase of ANH due to your analysis (I’m doing my own dd though).


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