Two Harbors (TWO) AI Stock Analysis

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Two Harbors

(NYSE:TWO)

53Neutral

Two Harbors' stock presents a mixed outlook. The company benefits from strong cash flow and strategic portfolio management, which are offset by inconsistent revenue, negative net income, and valuation concerns. The earnings call highlighted positive economic returns, but also emphasized challenges such as increased expenses and market volatility. Overall, the stock requires careful consideration due to its financial volatility and market uncertainties.

Positive Factors

Dividend

The company has a high-yielding and apparently sustainable dividend, yielding 14.5% annualized.

Stock Price Appreciation

The company is positioned for stock price appreciation, with an expected increase of 20.8% towards the price target of $15.

Total Return

The stock is expected to have a 20.8% price appreciation, contributing to an estimated 12-month total return of about 35%.

Negative Factors

Unrealized Marks

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

$1.23B

Dividend Yield15.16%

Average Volume (3M)1.87M

Price to Earnings (P/E)5.1

Beta (1Y)1.31

Revenue Growth-18.22%

EPS Growth-114.40%

CountryUS

Employees477

SectorReal Estate

Sector Strength83

IndustryREIT - Mortgage

Share Statistics

EPS (TTM)-0.50

Shares Outstanding104,025,090

10 Day Avg. Volume1,706,836

30 Day Avg. Volume1,870,853

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)0.00

Price to Cash Flow (P/CF)0.00

P/FCF Ratio0.00

Enterprise Value/Market Cap9.91

Enterprise Value/RevenueN/A

Enterprise Value/Gross Profit23.96

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$13.29

Price Target Upside12.91% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering7

Two Harbors Business Overview & Revenue Model

Company DescriptionTwo Harbors Investment Corp. operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), non-agency securities, mortgage servicing rights, and other financial assets in the United States. Its target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, and hybrid adjustable-rate mortgage (ARMs); and other assets, such as financial and mortgage-related assets, including non-agency securities and non-hedging transactions. The company qualifies as a REIT for federal income tax purposes. As a REIT, the company must distribute at least 90% of annual taxable income to its stockholders. Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in Minnetonka, Minnesota.

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 in 2024, though it managed to achieve net income through other means. The balance sheet indicates reduced leverage, providing some stability, but inconsistent cash flow trends and zero operating cash flow in the latest year raise liquidity concerns. Overall, the company needs to enhance revenue generation and cash flow management for improved financial health.

Income Statement

Negative

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.

Balance Sheet

Neutral

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.

Cash Flow

Negative

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.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.14B	257.08M	407.18M	255.22M	-1.56B
	Gross Profit
510.75M	161.59M	324.45M	191.42M	-1.63B
	EBIT
344.75M	108.72M	549.39M	191.42M	-1.67B
	EBITDA
344.75M	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

Technical Analysis Sentiment

Neutral

Last Price11.77

Price Trends

50DMA

12.47

Negative

100DMA

12.00

Negative

200DMA

11.94

Negative

Market Momentum

MACD

-0.13

Negative

RSI

49.29

Neutral

STOCH

68.29

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TWO, the sentiment is Neutral. The current price of 11.77 is above the 20-day moving average (MA) of 11.36, below the 50-day MA of 12.47, and below the 200-day MA of 11.94, indicating a neutral trend. The MACD of -0.13 indicates Negative momentum. The RSI at 49.29 is Neutral, neither overbought nor oversold. The STOCH value of 68.29 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for TWO.

Two Harbors Risk Analysis

Two Harbors disclosed 59 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 (60)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ARI	66 Neutral	$1.31B	―	0.41%	11.74%	-14.98%	95.53%
EFC	65 Neutral	$1.23B	9.70	9.45%	11.97%	11.91%	52.26%
DX	60 Neutral	$1.19B	15.92	6.01%	13.63%	13.67%	-34.10%
Sector *	60 Neutral	$2.74B	11.40	0.08%	8531.66%	5.98%	-15.71%
PMT	54 Neutral	$1.12B	13.78	6.36%	12.46%	-5.51%	-43.96%
TWO	53 Neutral	$1.23B	5.06	0.63%	15.16%	-18.22%	-114.40%
ARR	48 Neutral	$1.35B	8.01	-0.11%	17.49%	142.18%	50.74%

* Real Estate Sector Average

Performance Comparison

TWO

Two Harbors

11.77

0.59

5.28%

ARI

Apollo Real Estate

9.42

0.42

4.67%

ARR

ARMOUR Residential REIT

16.40

0.24

1.49%

Dynex Capital

12.19

1.73

16.54%

EFC

Ellington Financial

12.96

2.66

25.83%

PMT

PennyMac Mortgage

12.81

-0.05

-0.39%

Two Harbors Earnings Call Summary

Earnings Call Date:Apr 28, 2025

(Q1-2025)

% Change Since: -1.92%|

Next Earnings Date:Jul 30, 2025

Earnings Call Sentiment Neutral

The earnings call presented a balanced outlook with positive economic returns and book value growth. However, challenges such as increased operating expenses, market volatility, and limited recapture opportunities offset some achievements.

Q1-2025 Updates

Positive Updates

Positive Economic Return

Generated a total economic return of 4.4% for the first quarter, with both RMBS and MSR contributing positively.

Book Value Increase

Book value increased to $14.66 per share at March 31 from $14.47 on December 31, resulting in a positive 4.4% quarterly economic return.

Comprehensive Income Growth

Generated comprehensive income of $64.9 million or $0.62 per weighted average common share in the first quarter.

Stable MBS Funding

MBS funding markets remained stable with repurchase spreads normalizing at SOFR plus around 20 basis points.

Strategic Portfolio Management

Decreased mortgage exposure by 30% and reduced leverage to manage risk effectively.

Negative Updates

Increased Operating Expenses

Operating expenses increased due to higher non-cash equity compensation expenses, typical in the first quarter.

Volatile Market Conditions

Experienced volatility in interest rates and spreads, influenced by economic uncertainty and policy changes.

Limited Recapture Opportunities

Organic recapture from direct-to-consumer channel remains low due to only 0.5% of the portfolio being refinanceable.

Challenges in MSR Market

Faced with increased competition in the MSR market, impacting prepayment speeds and return potential.

Company Guidance

In Two's first quarter 2025 earnings call, the company reported a total economic return of 4.4%, with RMBS and MSR contributing positively to these results. The interest rates for 2-year and 10-year U.S. Treasury notes decreased by 36 basis points, ending the quarter at 3.88% and 4.21%, respectively. The company's book value increased to $14.66 per share, up from $14.47 at the end of 2024, with a common stock dividend of $0.45, resulting in a positive quarterly economic return of 4.4%. Comprehensive income for the quarter was $64.9 million or $0.62 per weighted average common share. Two's economic debt-to-equity ratio decreased to 6.2 times, with a portfolio of $14.6 billion, including $11.6 billion in settled positions and $3 billion in TBAs. The static return estimate was projected between 9.1% to 14.7%, considering the current portfolio allocations and leverage adjustments.

Two Harbors Corporate Events

Executive/Board Changes

Two Harbors Reappoints William Dellal as CFO

Neutral

Apr 18, 2025

On April 18, 2025, Two Harbors Investment Corp. announced that William Dellal has been appointed as the Vice President and Chief Financial Officer, reversing a previous decision for him to resign on May 5, 2025. There were no changes to Mr. Dellal’s compensatory arrangements in connection with his continued service in this role.

Spark’s Take on TWO Stock

According to Spark, TipRanks’ AI Analyst, TWO is a Neutral.

Two Harbors receives an overall stock score of 62. The company’s significant challenges in revenue generation and cash flow management weigh heavily on its financial performance. Technical analysis shows positive market momentum, though caution is warranted due to overbought signals. Valuation metrics are attractive, indicating potential undervaluation and high dividend yield benefits. The earnings call highlights strategic progress but also underscores current financial difficulties. While the company has potential, addressing its financial challenges is critical for future success.

To see Spark’s full report on TWO stock, click here.

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.