Amidst the Federal Reserve’s efforts to curb inflation by maintaining high interest rates, AGNC Investment’s (NASDAQ:AGNC) upcoming Q4 earnings report, set for Monday, is expected to face continued pressure.

The mortgage REIT’s projected net spread and dollar roll income for Q4 2023 is $0.58 per share, showing a decline from $0.65 in Q3 and $0.74 in Q4 2022.

In the past three months, five analysts have revised their earnings estimates downward, while two have made upward adjustments. Overall, the Q4 consensus has dropped by 1.6%. Despite this, there are signs of a potential shift in sentiment, with slightly positive net revisions in the past month for Q4 earnings estimates.

AGNC Investment, known for consistently surpassing the average analyst estimate, has exceeded the consensus in each of the previous 12 quarters.

A focal point of interest will be AGNC’s net interest income, which has been a concern due to escalating interest expenses surpassing the interest it collects. This has led to negative net interest income over the last three quarters, amounting to -$53M in Q3, -$69M in Q2, and -$98M in Q1. The last instance of positive NII was $25M in Q4 2022.

While it is anticipated that mortgage REITs, including AGNC, will thrive as a result of lower interest rates – a possibility later this year, such benefits are unlikely to manifest in Q4 2023. The value of mortgage-backed securities tends to rise when interest rates fall, favoring MBS investors.

Notably, in December, BTIG analyst Eric Hagen raised the price target for AGNC to $10.50 from $9, foreseeing potential upsides from lower interest rates and tighter MBS spreads.

In a note dated Jan. 19, Hagen highlighted potential net interest margin sensitivity for both Annaly (NLY) and AGNC (AGNC). This is due to their plan to replace short duration hedges by year-end. Should the Federal Reserve commence rate cuts as the hedges expire, the timing could prove favorable.

SA Analyst The Asian Investor sees revaluation prospects for AGNC (AGNC) (as well as Annaly (NLY)), stemming from two factors – reduced interest expenses alleviating the pressure on AGNC’s net interest income, and the potential growth of AGNC’s MBS portfolio in a low-rate environment contributing to the rise in book value per share and tangible common equity.