AGNC Investment (AGNC) has moved back into the spotlight after filing a US$2 billion at-the-market follow-on equity offering, raising fresh capital while also running a US$1 billion share repurchase plan.

At a share price of US$10.17, AGNC has eased in the short term, with the 30 day share price return down 6.35% and the year to date share price return down 6.95%. At the same time, the 1 year total shareholder return stands at 28.30% and the 3 year total shareholder return at 61.72%, suggesting longer term holders have seen stronger gains than recent price action implies.

If this kind of capital raising and buyback activity has you thinking about other income focused ideas, it may be worth scanning for opportunities using the 9 dividend fortresses

With AGNC trading at US$10.17 and indicators such as a value score of 5 and an intrinsic discount of 41.81% in focus, the key question is whether the stock is genuinely undervalued or whether the market already reflects future growth.

Price-to-Earnings of 9x: Is it justified?

On a P/E of 9x at a last close of $10.17, AGNC screens as good value compared to peers and the broader US Mortgage REITs industry, pointing to a market that prices its earnings below sector averages.

The P/E ratio compares the share price to earnings per share and is a common way to gauge how much investors are paying for current profits in income focused sectors such as mortgage REITs. A lower P/E can suggest the market is placing a lower value on each dollar of earnings, which sometimes happens when investors are cautious about the quality or persistence of those earnings.

AGNC trades on a P/E of 9x versus an industry average of 11.5x and a peer average of 11.7x, so the discount is clear and consistent. Compared with an estimated fair P/E of 14.9x, the current multiple also sits well below a level the market could potentially move towards if sentiment and assumptions align with that fair ratio.

Result: Price-to-Earnings of 9x (UNDERVALUED)

However, the income story can be challenged if mortgage spreads, funding costs or government backed prepayment trends shift, which can put pressure on earnings and valuation assumptions.

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Another view: what does the cash flow say?

The earnings multiple paints AGNC as undervalued, but the SWS DCF model goes further, putting fair value at $17.48 a share versus the current $10.17. That implies a large gap, which can look attractive, but also raises the question: what needs to go right for that gap to close?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AGNC Investment for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Curious whether the current mix of opportunities and concerns really adds up for you personally? Take a closer look at the 4 key rewards and 3 important warning signs

Looking for more investment ideas?

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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.