Intrinsic value of Annaly Capital Management - NLY

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$12.66

  Intrinsic Value

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  Value-price divergence*

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$12.66

 
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Our model is not good at valuating stocks of financial companies, such as NLY.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NLY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 13.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  95.60
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  2,267
  3,627
  5,604
  8,381
  12,160
  17,156
  23,586
  31,659
  41,570
  53,491
  67,563
  83,898
  102,574
  123,636
  147,103
  172,966
  201,201
  231,767
  264,614
  299,689
  336,940
  376,317
  417,780
  461,297
  506,848
  554,427
  604,039
  655,706
  709,463
  765,357
  823,452
Variable operating expenses, $m
 
  456
  701
  1,045
  1,513
  2,132
  2,928
  3,927
  5,155
  6,631
  8,373
  10,389
  12,701
  15,309
  18,215
  21,417
  24,914
  28,698
  32,766
  37,109
  41,721
  46,597
  51,731
  57,120
  62,760
  68,651
  74,795
  81,192
  87,849
  94,770
  101,963
Fixed operating expenses, $m
 
  576
  590
  605
  620
  636
  652
  668
  685
  702
  719
  737
  756
  775
  794
  814
  834
  855
  877
  898
  921
  944
  968
  992
  1,017
  1,042
  1,068
  1,095
  1,122
  1,150
  1,179
Total operating expenses, $m
  836
  1,032
  1,291
  1,650
  2,133
  2,768
  3,580
  4,595
  5,840
  7,333
  9,092
  11,126
  13,457
  16,084
  19,009
  22,231
  25,748
  29,553
  33,643
  38,007
  42,642
  47,541
  52,699
  58,112
  63,777
  69,693
  75,863
  82,287
  88,971
  95,920
  103,142
Operating income, $m
  1,431
  2,595
  4,312
  6,731
  10,027
  14,389
  20,006
  27,064
  35,731
  46,158
  58,471
  72,772
  89,117
  107,552
  128,094
  150,735
  175,454
  202,214
  230,972
  261,682
  294,298
  328,776
  365,081
  403,186
  443,072
  484,734
  528,177
  573,420
  620,492
  669,438
  720,310
EBITDA, $m
  1,466
  2,614
  4,338
  6,765
  10,073
  14,451
  20,089
  27,172
  35,871
  46,337
  58,694
  73,041
  89,445
  107,948
  128,564
  151,289
  176,097
  202,955
  231,819
  262,641
  295,376
  329,980
  366,418
  404,662
  444,694
  486,508
  530,110
  575,518
  622,763
  671,887
  722,945
Interest expense (income), $m
  625
  2,503
  4,090
  6,363
  9,555
  13,900
  19,644
  27,035
  36,316
  47,711
  61,415
  77,593
  96,372
  117,841
  142,055
  169,032
  198,765
  231,225
  266,364
  304,125
  344,448
  387,272
  432,541
  480,207
  530,235
  582,601
  637,298
  694,334
  753,731
  815,530
  879,787
Earnings before tax, $m
  1,431
  91
  222
  368
  472
  489
  363
  28
  -585
  -1,552
  -2,944
  -4,820
  -7,255
  -10,289
  -13,961
  -18,297
  -23,312
  -29,011
  -35,392
  -42,443
  -50,150
  -58,496
  -67,459
  -77,021
  -87,163
  -97,868
  -109,121
  -120,914
  -133,239
  -146,092
  -159,477
Tax expense, $m
  -2
  25
  60
  99
  127
  132
  98
  8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  1,434
  67
  162
  268
  344
  357
  265
  21
  -585
  -1,552
  -2,944
  -4,820
  -7,255
  -10,289
  -13,961
  -18,297
  -23,312
  -29,011
  -35,392
  -42,443
  -50,150
  -58,496
  -67,459
  -77,021
  -87,163
  -97,868
  -109,121
  -120,914
  -133,239
  -146,092
  -159,477

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,540
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  87,905
  139,508
  215,539
  322,339
  467,698
  659,854
  907,147
  1,217,657
  1,598,861
  2,057,345
  2,598,594
  3,226,864
  3,945,151
  4,755,233
  5,657,789
  6,652,555
  7,738,519
  8,914,124
  10,177,474
  11,526,519
  12,959,229
  14,473,737
  16,068,460
  17,742,190
  19,494,163
  21,324,110
  23,232,285
  25,219,480
  27,287,033
  29,436,818
  31,671,240
Adjusted assets (=assets-cash), $m
  86,365
  139,508
  215,539
  322,339
  467,698
  659,854
  907,147
  1,217,657
  1,598,861
  2,057,345
  2,598,594
  3,226,864
  3,945,151
  4,755,233
  5,657,789
  6,652,555
  7,738,519
  8,914,124
  10,177,474
  11,526,519
  12,959,229
  14,473,737
  16,068,460
  17,742,190
  19,494,163
  21,324,110
  23,232,285
  25,219,480
  27,287,033
  29,436,818
  31,671,240
Revenue / Adjusted assets
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
  0.026
Average production assets, $m
  37
  58
  90
  134
  195
  274
  377
  507
  665
  856
  1,081
  1,342
  1,641
  1,978
  2,354
  2,767
  3,219
  3,708
  4,234
  4,795
  5,391
  6,021
  6,684
  7,381
  8,110
  8,871
  9,665
  10,491
  11,351
  12,246
  13,175
Working capital, $m
  0
  1,814
  2,802
  4,190
  6,080
  8,578
  11,793
  15,830
  20,785
  26,745
  33,782
  41,949
  51,287
  61,818
  73,551
  86,483
  100,601
  115,884
  132,307
  149,845
  168,470
  188,159
  208,890
  230,648
  253,424
  277,213
  302,020
  327,853
  354,731
  382,679
  411,726
Total debt, $m
  73,081
  116,871
  181,802
  273,009
  397,145
  561,246
  772,435
  1,037,610
  1,363,158
  1,754,704
  2,216,930
  2,753,473
  3,366,890
  4,058,700
  4,829,483
  5,679,013
  6,606,426
  7,610,393
  8,689,294
  9,841,378
  11,064,913
  12,358,303
  13,720,196
  15,149,561
  16,645,746
  18,208,521
  19,838,102
  21,535,167
  23,300,857
  25,136,773
  27,044,970
Total liabilities, $m
  75,337
  119,140
  184,071
  275,278
  399,414
  563,515
  774,704
  1,039,879
  1,365,427
  1,756,973
  2,219,199
  2,755,742
  3,369,159
  4,060,969
  4,831,752
  5,681,282
  6,608,695
  7,612,662
  8,691,563
  9,843,647
  11,067,182
  12,360,572
  13,722,465
  15,151,830
  16,648,015
  18,210,790
  19,840,371
  21,537,436
  23,303,126
  25,139,042
  27,047,239
Total equity, $m
  12,568
  20,368
  31,469
  47,062
  68,284
  96,339
  132,443
  177,778
  233,434
  300,372
  379,395
  471,122
  575,992
  694,264
  826,037
  971,273
  1,129,824
  1,301,462
  1,485,911
  1,682,872
  1,892,047
  2,113,166
  2,345,995
  2,590,360
  2,846,148
  3,113,320
  3,391,914
  3,682,044
  3,983,907
  4,297,775
  4,624,001
Total liabilities and equity, $m
  87,905
  139,508
  215,540
  322,340
  467,698
  659,854
  907,147
  1,217,657
  1,598,861
  2,057,345
  2,598,594
  3,226,864
  3,945,151
  4,755,233
  5,657,789
  6,652,555
  7,738,519
  8,914,124
  10,177,474
  11,526,519
  12,959,229
  14,473,738
  16,068,460
  17,742,190
  19,494,163
  21,324,110
  23,232,285
  25,219,480
  27,287,033
  29,436,817
  31,671,240
Debt-to-equity ratio
  5.815
  5.740
  5.780
  5.800
  5.820
  5.830
  5.830
  5.840
  5.840
  5.840
  5.840
  5.840
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
  5.850
Adjusted equity ratio
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146
  0.146

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,434
  67
  162
  268
  344
  357
  265
  21
  -585
  -1,552
  -2,944
  -4,820
  -7,255
  -10,289
  -13,961
  -18,297
  -23,312
  -29,011
  -35,392
  -42,443
  -50,150
  -58,496
  -67,459
  -77,021
  -87,163
  -97,868
  -109,121
  -120,914
  -133,239
  -146,092
  -159,477
Depreciation, amort., depletion, $m
  35
  19
  25
  34
  46
  62
  83
  109
  140
  178
  223
  268
  328
  396
  471
  553
  644
  742
  847
  959
  1,078
  1,204
  1,337
  1,476
  1,622
  1,774
  1,933
  2,098
  2,270
  2,449
  2,635
Funds from operations, $m
  6,823
  85
  187
  302
  390
  419
  347
  129
  -445
  -1,374
  -2,720
  -4,552
  -6,926
  -9,893
  -13,490
  -17,743
  -22,668
  -28,270
  -34,545
  -41,484
  -49,072
  -57,292
  -66,122
  -75,545
  -85,541
  -96,093
  -107,188
  -118,816
  -130,968
  -143,643
  -156,842
Change in working capital, $m
  -33
  680
  988
  1,388
  1,890
  2,498
  3,215
  4,037
  4,956
  5,960
  7,036
  8,168
  9,338
  10,531
  11,733
  12,932
  14,118
  15,283
  16,424
  17,538
  18,625
  19,689
  20,731
  21,758
  22,776
  23,789
  24,806
  25,834
  26,878
  27,947
  29,047
Cash from operations, $m
  6,856
  -597
  -801
  -1,086
  -1,499
  -2,079
  -2,867
  -3,907
  -5,401
  -7,334
  -9,757
  -12,719
  -16,264
  -20,424
  -25,223
  -30,675
  -36,786
  -43,552
  -50,968
  -59,022
  -67,697
  -76,980
  -86,854
  -97,304
  -108,317
  -119,883
  -131,995
  -144,649
  -157,846
  -171,590
  -185,889
Maintenance CAPEX, $m
  0
  -7
  -12
  -18
  -27
  -39
  -55
  -75
  -101
  -133
  -171
  -216
  -268
  -328
  -396
  -471
  -553
  -644
  -742
  -847
  -959
  -1,078
  -1,204
  -1,337
  -1,476
  -1,622
  -1,774
  -1,933
  -2,098
  -2,270
  -2,449
New CAPEX, $m
  -445
  -22
  -32
  -44
  -60
  -80
  -103
  -129
  -159
  -191
  -225
  -261
  -299
  -337
  -375
  -414
  -452
  -489
  -526
  -561
  -596
  -630
  -663
  -696
  -729
  -761
  -794
  -827
  -860
  -894
  -930
Cash from investing activities, $m
  -2,062
  -29
  -44
  -62
  -87
  -119
  -158
  -204
  -260
  -324
  -396
  -477
  -567
  -665
  -771
  -885
  -1,005
  -1,133
  -1,268
  -1,408
  -1,555
  -1,708
  -1,867
  -2,033
  -2,205
  -2,383
  -2,568
  -2,760
  -2,958
  -3,164
  -3,379
Free cash flow, $m
  4,794
  -626
  -844
  -1,148
  -1,587
  -2,198
  -3,025
  -4,112
  -5,661
  -7,658
  -10,153
  -13,197
  -16,831
  -21,090
  -25,995
  -31,560
  -37,791
  -44,685
  -52,236
  -60,430
  -69,252
  -78,688
  -88,721
  -99,337
  -110,522
  -122,266
  -134,563
  -147,409
  -160,805
  -174,755
  -189,268
Issuance/(repayment) of debt, $m
  -3,236
  45,343
  64,931
  91,207
  124,136
  164,101
  211,188
  265,175
  325,548
  391,546
  462,227
  536,543
  613,417
  691,810
  770,783
  849,530
  927,413
  1,003,967
  1,078,901
  1,152,084
  1,223,534
  1,293,390
  1,361,893
  1,429,365
  1,496,185
  1,562,775
  1,629,581
  1,697,065
  1,765,690
  1,835,916
  1,908,197
Issuance/(repurchase) of shares, $m
  -103
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -3,802
  45,343
  64,931
  91,207
  124,136
  164,101
  211,188
  265,175
  325,548
  391,546
  462,227
  536,543
  613,417
  691,810
  770,783
  849,530
  927,413
  1,003,967
  1,078,901
  1,152,084
  1,223,534
  1,293,390
  1,361,893
  1,429,365
  1,496,185
  1,562,775
  1,629,581
  1,697,065
  1,765,690
  1,835,916
  1,908,197
Total cash flow (excl. dividends), $m
  991
  44,717
  64,087
  90,059
  122,550
  161,903
  208,163
  261,063
  319,887
  383,888
  452,074
  523,346
  596,585
  670,721
  744,788
  817,970
  889,622
  959,282
  1,026,665
  1,091,655
  1,154,282
  1,214,702
  1,273,172
  1,330,028
  1,385,663
  1,440,509
  1,495,019
  1,549,656
  1,604,885
  1,661,161
  1,718,929
Retained Cash Flow (-), $m
  -672
  -7,800
  -11,101
  -15,593
  -21,222
  -28,055
  -36,105
  -45,334
  -55,656
  -66,939
  -79,022
  -91,727
  -104,870
  -118,272
  -131,773
  -145,236
  -158,551
  -171,638
  -184,449
  -196,961
  -209,176
  -221,118
  -232,830
  -244,364
  -255,788
  -267,172
  -278,594
  -290,131
  -301,863
  -313,869
  -326,226
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  36,916
  52,986
  74,466
  101,327
  133,848
  172,058
  215,729
  264,232
  316,949
  373,051
  431,619
  491,716
  552,449
  613,015
  672,734
  731,072
  787,644
  842,216
  894,694
  945,106
  993,583
  1,040,342
  1,085,664
  1,129,875
  1,173,337
  1,216,425
  1,259,526
  1,303,022
  1,347,293
  1,392,703
Discount rate, %
 
  12.50
  13.13
  13.78
  14.47
  15.19
  15.95
  16.75
  17.59
  18.47
  19.39
  20.36
  21.38
  22.45
  23.57
  24.75
  25.99
  27.29
  28.65
  30.08
  31.59
  33.17
  34.82
  36.57
  38.39
  40.31
  42.33
  44.45
  46.67
  49.00
  51.45
PV of cash for distribution, $m
 
  32,815
  41,404
  50,553
  59,014
  65,988
  70,790
  72,959
  72,287
  68,956
  63,391
  56,202
  48,082
  39,711
  31,671
  24,394
  18,146
  13,034
  9,037
  6,046
  3,901
  2,426
  1,453
  837
  464
  247
  126
  61
  29
  13
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Annaly Capital Management, Inc. owns a portfolio of real estate related investments in the United States. The company invests in various types of agency mortgage-backed securities and related derivatives to hedge these investments; and residential credit investments, such as residential mortgage loans and non-agency mortgage-backed assets within securitized products. It also originates and invests in commercial mortgage loans, securities, and other commercial real estate investments; lends customized debt financing to middle-market businesses; and operates as a broker-dealer. The company has elected to be taxed as a real estate investment trust (REIT). As a REIT, it is not subject to federal income tax to the extent that it distributes its taxable income to its shareholders. Annaly Capital Management, Inc. was founded in 1997 and is based in New York, New York.

FINANCIAL RATIOS  of  Annaly Capital Management (NLY)

Valuation Ratios
P/E Ratio 9
Price to Sales 5.7
Price to Book 1
Price to Tangible Book
Price to Cash Flow 1.9
Price to Free Cash Flow 2
Growth Rates
Sales Growth Rate 95.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11025%
Cap. Spend. - 3 Yr. Gr. Rate -14.7%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 62.5%
Total Debt to Equity 581.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 11.7%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 0
Profitability Ratios
Gross Margin 71%
Gross Margin - 3 Yr. Avg. 225.4%
EBITDA Margin 92.2%
EBITDA Margin - 3 Yr. Avg. 154.7%
Operating Margin 63.1%
Oper. Margin - 3 Yr. Avg. 277%
Pre-Tax Margin 63.1%
Pre-Tax Margin - 3 Yr. Avg. 277%
Net Profit Margin 63.3%
Net Profit Margin - 3 Yr. Avg. 278.6%
Effective Tax Rate -0.1%
Eff/ Tax Rate - 3 Yr. Avg. -0.4%
Payout Ratio 85.1%

NLY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NLY stock intrinsic value calculation we used $2267 million for the last fiscal year's total revenue generated by Annaly Capital Management. The default revenue input number comes from 2016 income statement of Annaly Capital Management. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NLY stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.5%, whose default value for NLY is calculated based on our internal credit rating of Annaly Capital Management, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Annaly Capital Management.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NLY stock the variable cost ratio is equal to 12.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $562 million in the base year in the intrinsic value calculation for NLY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Annaly Capital Management.

Corporate tax rate of 27% is the nominal tax rate for Annaly Capital Management. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NLY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NLY are equal to 1.6%.

Life of production assets of 3.1 years is the average useful life of capital assets used in Annaly Capital Management operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NLY is equal to 50%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12568 million for Annaly Capital Management - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1025.67 million for Annaly Capital Management is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Annaly Capital Management at the current share price and the inputted number of shares is $13.0 billion.


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Stock chart of NLY Financial statements of NLY Annual reports of NLY
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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