Critical Comparison: Annaly Capital Management, Inc. (NLY) vs. Starwood Property Trust, Inc. (STWD)

Annaly Capital Management, Inc. (NYSE:NLY) shares are up more than 22.17% this year and recently decreased -0.49% or -$0.06 to settle at $12.18. Starwood Property Trust, Inc. (NYSE:STWD), on the other hand, is down -0.46% year to date as of 12/15/2017. It currently trades at $21.85 and has returned 0.78% during the past week.

Annaly Capital Management, Inc. (NYSE:NLY) and Starwood Property Trust, Inc. (NYSE:STWD) are the two most active stocks in the REIT – Diversified industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.


One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NLY to grow earnings at a 0.12% annual rate over the next 5 years. Comparatively, STWD is expected to grow at a 3.34% annual rate. All else equal, STWD’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 94.35% for Starwood Property Trust, Inc. (STWD). NLY’s ROI is 1.70% while STWD has a ROI of 1.10%. The interpretation is that NLY’s business generates a higher return on investment than STWD’s.

Cash Flow 

Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, NLY’s free cash flow was 0% while STWD converted 0% of its revenues into cash flow. This means that, for a given level of sales, NLY is able to generate more free cash flow for investors.

Financial Risk

NLY’s debt-to-equity ratio is 6.18 versus a D/E of 1.70 for STWD. NLY is therefore the more solvent of the two companies, and has lower financial risk.


NLY trades at a forward P/E of 10.25, a P/B of 1.05, and a P/S of 3.72, compared to a forward P/E of 10.02, a P/B of 1.26, and a P/S of 6.90 for STWD. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. NLY is currently priced at a 6.56% to its one-year price target of 11.43. Comparatively, STWD is -8.42% relative to its price target of 23.86. This suggests that STWD is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.40 for NLY and 2.00 for STWD, which implies that analysts are more bullish on the outlook for NLY.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. NLY has a beta of 0.28 and STWD’s beta is 0.56. NLY’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.NLY has a short ratio of 2.37 compared to a short interest of 9.17 for STWD. This implies that the market is currently less bearish on the outlook for NLY.


Annaly Capital Management, Inc. (NYSE:NLY) beats Starwood Property Trust, Inc. (NYSE:STWD) on a total of 7 of the 14 factors compared between the two stocks. NLY is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, NLY is the cheaper of the two stocks on book value and sales basis, Finally, NLY has better sentiment signals based on short interest.

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