Annaly Capital Management has delivered a 71.1% total return over the last three years, yet valuation checks and an intrinsic value estimate based on the Excess Returns model both point to the stock trading at a discount to what the underlying business may justify. That combination of strong medium term returns and an apparent valuation gap is the question investors are now weighing.

• Over the past three years, Annaly Capital Management has returned 71.1%. This puts recent price strength on the radar for anyone assessing whether there is still value left in the stock.
• Future returns can be heavily influenced by how effectively Annaly Capital Management manages interest rate exposure and funding costs. The inherent leverage and sensitivity of a mortgage focused balance sheet remain key risks for the valuation.
• Annaly Capital Management screens as undervalued on both the Excess Returns intrinsic value estimate and earnings based multiples. However, the broader checks are mixed, with the company passing 4 of 6 valuation tests rather than offering a clear cut bargain.

The stock's next move may depend on whether the current share price already reflects the risks in Annaly Capital Management's mortgage focused model or still leaves a reasonable margin between price and intrinsic value.

Is Annaly Capital Management a Bargain on Excess Returns?

The Excess Returns model evaluates how much profit Annaly Capital Management can earn over and above its cost of equity, then links that to long run growth in book value per share.

For Annaly Capital Management, the inputs are based on its equity base and projected profitability. Book value is $20.15 per share, with a stable book value estimate of $20.44 per share based on forecasts from 5 analysts. Stable EPS is $3.10 per share, while the cost of equity is $1.84 per share. That leaves an excess return of $1.26 per share, supported by an average return on equity of 15.15%. This spread between what the company is expected to earn and what investors require is what drives the intrinsic value estimate.

Using these inputs, the Excess Returns model points to an intrinsic value of $44.13 per share. Compared with the current share price, that implies the stock is 47.5% undervalued and that the market price leaves a wide gap to the model based estimate.

On these assumptions, Annaly Capital Management stock appears undervalued relative to the Excess Returns estimate of intrinsic value.

Our Excess Returns analysis suggests Annaly Capital Management is undervalued by 47.5%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.

Does Annaly Capital Management Look Undervalued on Earnings?

P/E is usually a straightforward way to compare Annaly Capital Management with other Mortgage REITs because it ties directly to current earnings per share. Annaly trades on a P/E of 6.3x, which is very close to the peer average of 6.2x and below the Mortgage REITs industry average of 9.1x. On simple comparisons, the stock does not screen as especially expensive relative to similar companies and sits at a discount to the wider industry group.

The fair P/E ratio estimate from the model is 11.8x, which is materially higher than Annaly Capital Management’s current 6.3x multiple. That gap suggests the market price is not fully reflecting the earnings level implied by the broader inputs used in the fair multiple, such as the company’s size, risk profile and sector. If those inputs prove reasonable, the current P/E implies a sizeable valuation cushion within this framework.

On the P/E multiple, Annaly Capital Management stock currently appears undervalued compared with the earnings-based fair value benchmark.

The Annaly Capital Management Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Annaly Capital Management are the next step in making sense of the apparent gap between the model based values above and the current share price. Each Narrative explains what would need to happen to Annaly Capital Management's growth, margins, earnings and risk profile for the stock to be worth materially more or less than today, and links those assumptions to specific numbers that you can revisit on the Community page as new information emerges.

Share a narrative on Annaly Capital Management's stock to present your own numbers-driven view on where its growth, margins and execution may go from here. Add your voice to the Simply Wall St community and see how your thesis holds up as new data comes through.

Do you think there's more to the story for Annaly Capital Management? Head over to our Community to see what others are saying!

The Bottom Line

Annaly Capital Management screens as undervalued on both the intrinsic value estimate from the Excess Returns model and on earnings based multiples, although the broader valuation checks are mixed rather than emphatically strong. The agreement between these two methods suggests a genuine discount, not just a quirk of one framework. The key question from here is whether that gap closes or persists. This largely depends on how effectively Annaly manages interest rate exposure and funding costs across its mortgage focused balance sheet.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.