Why Are Bears Still Going Short on AGNC Investment?

Key Points

• AGNC's short-interest ratio surged during October but has since been reduced.
• Regardless, there is still considerable interest from short sellers who want to see the stock fall lower.
• The company posted largely negative quarterly results this month.
• One highlight included recording $1.73 billion in net unrealized losses on investment securities.

The short-interest ratio for AGNC Investment NASDAQ: AGNC spiked hard in October and now the ratio sits at around 5.23% of its total market float. 

27,110,000 shares were sold short ending on October 31, which represents an 11.3% increase from 24,350,000 on October 15th.

Although short interest for the REIT stock has now almost halved, there are some lingering weaknesses in its fundamentals.

Let’s cover what those weaknesses are to see if we can figure out why bears are going short on AGNC.

Why Are Short-Sellers Targeting the AGNC Investment Stock?

There is undoubtedly some pessimism that surrounds AGNC in the form of some recent price target downgrades with 5 in total starting from the beginning of October. Its stock price has also been heavily reduced in a short period of time as it's down 38.77%.

At present, the consensus on Wall Street is that AGNC’s stock is a moderate buy based on six analysts who follow the company. The MarketBeat consensus price target stands at $10.10 per share, thus giving it a 6.77% upside at the time of writing.

However, when comparing this rating side by side with its peers in the financial industry, things begin to fall apart. The predicted upside for financial stocks as an aggregate is 64.74%.

Meanwhile, companies in the S&P 500 also have a larger upside than AGNC at 15.26%.

Pessimistic Earnings Forecast

Something that could be driving these downgrades and interest from short sellers is that its earnings are predicted to decrease in the coming year.

AGNC’s earnings are poised to shrink from $3.04 to $2.19 per share. 

Peeling back the curtain further is that, the REIT posted a $666 million loss in net income for the quarter ending September 2022. In the same period in 2021, AGNC reported a $187 million gain.

This loss of $666 million is also not accounting for $1.73 billion in net unrealized losses on investment securities measured at fair value through net income.

The Bottom Line

Significant downturns in the real estate markets likely turned investor sentiment against AGNC over the short term. Also, it may have surprised the market with its results from the most recent quarter, which caused a surge in short interest.

But now that the bad news has already been priced in, there is less reason for shorts to keep piling on the stock, thus giving bulls some much-needed relief from the downward pressure.