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Two Harbors Investment Corp. (TWO)
:TWO
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Two Harbors
(NYSE:TWO)62Neutral
Positive Factors
Dividend Sustainability
The dividend, yielding 14.5% annualized, is viewed as sustainable by management.
Stock Price Appreciation
The stock is expected to have a 20.8% price appreciation, contributing to an estimated 12-month total return of about 35%.
Negative Factors
Interest Rate Volatility
Results were negatively impacted by large unrealized marks on residential mortgage-backed securities due to interest rate volatility.
Two Harbors (TWO) vs. S&P 500 (SPY)
Market Cap
$1.44B
Dividend Yield13.04%
Average Volume (3M)1.21M
Price to Earnings (P/E)5.8
Beta (1Y)1.60
Revenue Growth28.33%
EPS GrowthN/A
CountryUS
Employees477
SectorReal Estate
Sector Strength72
IndustryREITs
Share Statistics
EPS (TTM)2.09
Shares Outstanding104,022,010
10 Day Avg. Volume1,152,665
30 Day Avg. Volume1,208,416
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)2.57
Price to Cash Flow (P/CF)-17.00
P/FCF Ratio0.80
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$13.50Price Target Upside-3.09% Downside
Rating ConsensusModerate Buy
Number of Analyst Covering6
Two Harbors Business Overview & Revenue Model
Company DescriptionTwo Harbors Investment Corp. is a real estate investment trust, which focuses on investing in, financing, and managing agency residential mortgage-backed securities, non-Agency securities, mortgage servicing rights, and other financial assets. Its objective is to provide risk-adjusted returns to its stockholders over the long-term, primarily through dividends and secondarily through capital appreciation. The company was founded on May 21, 2009 and is headquartered in New York, NY.
How the Company Makes MoneyTwo Harbors makes money primarily through its investments in residential mortgage-backed securities (RMBS) and mortgage servicing rights (MSR). The company's revenue model relies on generating income from the interest and principal payments of the mortgage loans underlying the RMBS. Additionally, by holding MSRs, Two Harbors earns fees for managing the servicing of mortgage loans. The company strategically manages its portfolio to optimize returns while mitigating risks associated with interest rate fluctuations and prepayment speeds. Two Harbors may also engage in hedging activities to protect against adverse market conditions. Significant partnerships with financial institutions and effective capital management strategies further contribute to its earnings.
Two Harbors Financial Statement Overview
Summary
Two Harbors faces significant challenges in income generation with zero revenue reported in the latest year. However, the balance sheet indicates reduced leverage, providing some financial stability. The inconsistent cash flow trends and absence of operating cash flow in the latest year raise significant liquidity concerns. Overall, the company needs to address revenue generation and improve cash flow management for better financial health.Income Statement
Two Harbors has faced declining revenue over the years, from $427 million in 2019 to zero in 2024. The gross profit margin in 2024 is negative due to a lack of revenue and gross profit loss. The net profit margin improved significantly in 2024, driven by a high net income despite zero revenue, highlighting potential one-time income or cost management. However, the trend of revenues turning negative or zero raises concerns about the company's ability to generate sales consistently.35
Negative
Balance Sheet
The debt-to-equity ratio decreased from 0.24 in 2019 to approximately 0.12 in 2024, indicating improved leverage. The equity ratio in 2024 is around 17.4%, showing a stable financial structure. However, fluctuations in total assets and liabilities suggest potential instability in asset management. Despite these issues, the company's balance sheet shows moderate stability and reduced reliance on debt.60
Neutral
Cash Flow
Two Harbors shows inconsistent free cash flow trends, with negative free cash flow in the latest year. The operating cash flow to net income ratio is unavailable for 2024 due to zero operating cash flow. Previous years indicate strong operating cash flow, but recent declines raise concerns about liquidity. The company's cash flow management appears weak, impacting its ability to maintain positive cash flow.40
Negative
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 0.00 | 257.08M | 407.18M | 255.22M | -1.56B | Gross Profit |
| -89.75M | 161.59M | 324.45M | 191.42M | -1.63B | EBIT |
| -600.76M | 108.72M | 549.39M | 191.42M | -1.67B | EBITDA |
| 0.00 | 0.00 | 629.18M | 191.42M | -1.67B | Net Income Common Stockholders |
| 251.68M | -106.37M | 220.24M | 187.23M | -1.63B |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 7.88B | 794.83M | 8.46B | 8.32B | 16.04B | Total Assets |
| 12.20B | 13.14B | 13.47B | 12.11B | 19.52B | Total Debt |
| 260.23M | 1.89B | 1.80B | 1.24B | 965.62M | Net Debt |
| -244.38M | 1.16B | 1.12B | 88.51M | -419.14M | Total Liabilities |
| 10.08B | 10.94B | 11.28B | 9.37B | 16.43B | Stockholders Equity |
| 2.12B | 2.20B | 2.18B | 2.74B | 3.09B |
| Cash Flow | Free Cash Flow | |||
| 86.88M | 30.87M | -6.41M | -318.64M | 9.20M | Operating Cash Flow |
| 201.00M | 343.51M | 623.40M | 423.51M | 631.60M | Investing Cash Flow |
| 0.00 | -195.78M | -2.75B | 6.31B | 14.90B | Financing Cash Flow |
| -1.07B | -479.40M | 1.17B | -7.30B | -14.51B |
Two Harbors Technical Analysis
Positive
13.93
Price Trends
12.44
Positive
12.02
Positive
12.18
Positive
Market Momentum
0.45
Positive
68.81
Neutral
45.88
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TWO, the sentiment is Positive. The current price of 13.93 is above the 20-day moving average (MA) of 13.55, above the 50-day MA of 12.44, and above the 200-day MA of 12.18, indicating a bullish trend. The MACD of 0.45 indicates Positive momentum. The RSI at 68.81 is Neutral, neither overbought nor oversold. The STOCH value of 45.88 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for TWO.
Two Harbors Risk Analysis
Two Harbors disclosed 60 risk factors in its most recent earnings report. Two Harbors reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Two Harbors Peers Comparison
Overall Rating
UnderperformOutperform
Sector (61)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
69 Neutral | $9.36B | 10.99 | 9.58% | 14.09% | 384.69% | 963700.00% | |
68 Neutral | $12.38B | 13.21 | 8.40% | 12.14% | 13.33% | ― | |
64 Neutral | $1.12B | 12.57 | 6.92% | 10.28% | 7.13% | 64.82% | |
62 Neutral | $1.44B | 5.82 | 13.74% | 13.04% | 28.33% | ― | |
61 Neutral | $4.91B | 18.99 | -3.12% | 7.77% | 6.71% | -19.69% | |
60 Neutral | $1.08B | 12.88 | 6.35% | 13.30% | 26.34% | 79.07% | |
58 Neutral | $527.79M | 13.23 | 8.19% | 18.71% | 137.36% | ― |
* Real Estate Sector Average
Performance Comparison
TWO
Two Harbors
13.93
2.79
25.04%
AGNC
AGNC Investment
10.29
2.02
24.43%
NLY
Annaly Capital
21.69
4.71
27.74%
CIM
Chimera Investment
13.90
1.99
16.71%
IVR
Invesco Mortgage
8.61
1.10
14.65%
MFA
MFA Financial
10.63
0.84
8.58%
Two Harbors Earnings Call Summary
Earnings Call Date: Jan 29, 2025 | % Change Since: 18.35% | Next Earnings Date: May 5, 2025
Earnings Call Sentiment Neutral
The earnings call presented a balanced view with both positive developments in strategic initiatives like the MSR portfolio integration and direct-to-consumer platform, as well as negative financial performance indicators such as flat quarterly returns and comprehensive losses. While the company is optimistic about its strategy and future returns, the current financial results reflect significant challenges.Highlights
MSR Portfolio Success
The integration of RoundPoint into Two has largely gone according to plan, with improved economics due to lower costs and increased revenue streams. The MSR-centric strategy is generating favorable returns independent of short-term fluctuations.
Direct-to-Consumer Origination Platform
Launched a direct-to-consumer origination platform to maintain the current servicing portfolio, acting as a hedge for the MSR portfolio. Funded $42 million UPB of first mortgages in the quarter and $21 million UPB in the pipeline.
Agency RMBS Portfolio
Portfolio at December 31 was $14.8 billion with a leverage exposure increase to a more normal range as spreads became more attractive in the quarter.
Positive Tailwinds for Servicing Portfolio
Flow prepayments are a positive tailwind for the servicing portfolio, with significant progress made on the direct-to-consumer originations platform serving as a hedge.
Lowlights
Flat Quarterly Economic Return
Book value was $14.47 per share at December 31st compared to $14.93 on September 30th, resulting in a flat quarterly economic return.
Comprehensive Loss
The company incurred a comprehensive loss of $1.6 million or $0.03 per weighted average common share in the fourth quarter.
Investment Securities Loss
Investment securities gains and changes in OCI swung from a gain of $270 million in the third quarter to a loss of $267 million in the fourth quarter.
Volatility Impact on MSR Performance
Quick rise in rates in October triggered rehedging, impacting MSR performance negatively.
Company Guidance
During the Two Fourth Quarter 2024 Earnings Call, the company provided guidance on several key financial metrics. The book value per common share was reported at $14.47 as of December 31, 2024, with a quarterly economic return on book value at 0.0% and an annual economic return of 7.0%. The company highlighted the effect of the Federal Reserve's interest rate cuts, noting a shift in market expectations from 100 basis points to roughly 35 basis points over the quarter, resulting in changes to treasury yields and the yield curve. The 10-year treasury yield rose by 79 basis points to 4.57%, while the 2-year yield increased by 60 basis points to 4.24%, deepening the yield curve by 19 basis points. The company serviced $212 billion UPB of MSR across 861,000 loans, with $58,000 or $11.2 billion UPB serviced for third-party clients. Total economic debt to equity was reported at 6.5 times, indicating a slight decrease, with the RMBS funding markets remaining stable by the quarter's end and spreads for repurchase agreements around SOFR plus 15 to 20 basis points. The direct-to-consumer origination platform, launched in 2024, showed promising proof-of-concept results with $42 million UPB of first mortgages funded in the quarter and an additional $21 million UPB in the pipeline. The company's strategy remains focused on MSR-centered returns, projecting a static return on common equity in the range of 10.8% to 14.4%.Two Harbors Corporate Events
Executive/Board Changes
Two Harbors Appoints Travis Swenson as New CFO
Neutral
Nov 12, 2024
Two Harbors Investment Corp. has appointed Travis Swenson as their new Chief Financial Officer, effective May 5, 2025. Swenson, who brings a wealth of experience from roles at Colliers Mortgage Holdings LLC, WeWork, and CBRE, will initially serve as Deputy CFO. His extensive background in real estate and financial services is expected to significantly contribute to Two Harbors’ strategic goals. The company is a REIT specializing in mortgage servicing rights and residential mortgage-backed securities.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.