Head to Head Analysis: Annaly Capital Management (NLY) and Redwood Trust (RWT)
Annaly Capital Management (NYSE: NLY) and Redwood Trust (NYSE:RWT) are both finance companies, but which is the better stock? We will compare the two businesses based on the strength of their risk, dividends, institutional ownership, earnings, valuation, profitability and analyst recommendations.
Institutional & Insider Ownership
48.4% of Annaly Capital Management shares are held by institutional investors. Comparatively, 84.7% of Redwood Trust shares are held by institutional investors. 0.4% of Annaly Capital Management shares are held by company insiders. Comparatively, 2.3% of Redwood Trust shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.
Earnings & Valuation
This table compares Annaly Capital Management and Redwood Trust’s gross revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Annaly Capital Management||$3.30 billion||4.27||$3.33 billion||$2.89||4.23|
|Redwood Trust||$215.70 million||5.95||$134.95 million||$1.75||9.50|
Annaly Capital Management has higher revenue and earnings than Redwood Trust. Annaly Capital Management is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.
This is a summary of recent recommendations and price targets for Annaly Capital Management and Redwood Trust, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Annaly Capital Management||1||3||2||0||2.17|
Annaly Capital Management currently has a consensus target price of $11.25, indicating a potential downside of 7.94%. Given Annaly Capital Management’s higher probable upside, equities research analysts clearly believe Annaly Capital Management is more favorable than Redwood Trust.
This table compares Annaly Capital Management and Redwood Trust’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Annaly Capital Management||121.84%||11.33%||1.52%|
Annaly Capital Management pays an annual dividend of $1.20 per share and has a dividend yield of 9.8%. Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 6.7%. Annaly Capital Management pays out 41.5% of its earnings in the form of a dividend. Redwood Trust pays out 64.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Annaly Capital Management is clearly the better dividend stock, given its higher yield and lower payout ratio.
Risk & Volatility
Annaly Capital Management has a beta of 0.28, meaning that its share price is 72% less volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 0.87, meaning that its share price is 13% less volatile than the S&P 500.
Annaly Capital Management beats Redwood Trust on 8 of the 15 factors compared between the two stocks.
About Annaly Capital Management
Annaly Capital Management, Inc. is a mortgage real estate investment trust (REIT). The Company owns a portfolio of real estate related investments. Its investment groups primarily consist of Agency, which invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments; Residential credit, which invests primarily in non-Agency mortgage-backed assets within securitized products and residential mortgage loan markets; Commercial real estate, which originates and invests in commercial mortgage loans, securities, and other commercial real estate investments, and Middle market, which provides customized debt financing to middle-market businesses. Its business operations consist of Annaly Commercial Real Estate Group, Inc., which is its subsidiary that specializes in originating or acquiring, financing and managing commercial loans and other commercial real estate debt; Annaly Middle Market Lending LLC, and RCap Securities, Inc.
About Redwood Trust
Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.
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