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Two Harbors (TWO)
NYSE:TWO
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Two Harbors
(NYSE:TWO)
Rating:55Neutral
Price Target:
$10.50
▲(1.35% Upside)
Positive Factors
Dividend
The dividend yield is currently at a high and sustainable 15.1%, which is attractive to income-focused investors.
Stock valuation
The company is positioned for stock price appreciation, with an expected increase of 20.8% towards the price target of $15.
Strategy
Management believes that the strategy of pairing Agency RMBS with mortgage servicing rights is well-positioned to benefit from market conditions.
Negative Factors
Debt
The company might need to take on more debt before year-end to support the maturity of its $260 million convertible bond coming due.
Financial performance
Two Harbors Investment Corp. reported a comprehensive loss of ($2.13)/share, leading to a 17.2% decline in book value per share.
Litigation
TWO announced a settlement agreement that resolves all claims in its litigation with Pine River, requiring a one-time cash payment of $375M.
Two Harbors (TWO) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$1.08B
Dividend Yield16.73%
Average Volume (3M)1.97M
Price to Earnings (P/E)5.1
Beta (1Y)1.17
Revenue Growth-21.95%
EPS Growth-528.94%
CountryUS
Employees477
SectorReal Estate
Sector Strength53
IndustryREIT - Mortgage
Share Statistics
EPS (TTM)0.28
Shares Outstanding104,132,454
10 Day Avg. Volume2,178,417
30 Day Avg. Volume1,971,623
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)N/A
P/FCF RatioN/A
Enterprise Value/Market Cap10.25
Enterprise Value/Revenue11.04
Enterprise Value/Gross Profit27.32
Enterprise Value/Ebitda32.09
Forecast
1Y Price Target
$10.90Price Target Upside5.21% Upside
Rating ConsensusHold
Number of Analyst Covering9
Two Harbors Business Overview & Revenue Model
Company DescriptionTwo Harbors Investment Corp. is a real estate investment trust (REIT) based in the United States that primarily invests in residential mortgage-backed securities (RMBS) and other financial assets related to housing. The company operates in the sector of real estate and mortgage finance and is focused on generating attractive risk-adjusted returns for its shareholders through diversified investment strategies in the mortgage sector.
How the Company Makes MoneyTwo Harbors makes money primarily through the acquisition and management of mortgage-backed securities and other related financial assets. The company generates revenue from the interest income earned on its investment portfolio, which includes RMBS and other mortgage-related investments. Additionally, Two Harbors may engage in the use of leverage to enhance returns, borrowing funds to increase its investment capacity. The company also benefits from the spread between the interest income earned on its assets and the interest expenses incurred on its borrowings. Key revenue streams include the management of its investment portfolio, which may involve securitization and trading activities, as well as potential partnerships with financial institutions that provide access to capital and investment opportunities.
Two Harbors Earnings Call Summary
Earnings Call Date:Jul 28, 2025
(Q2-2025)
| % Change Since: |
Next Earnings Date:Nov 11, 2025
Earnings Call Sentiment Negative
The earnings call presented a mixed outlook. There were achievements in AI implementation and an increase in first lien originations. However, the significant loss contingency accrual and comprehensive loss overshadowed these achievements, contributing to a negative economic return for the quarter.Q2-2025 Updates
Positive Updates
Increase in First Lien Originations
First lien originations funded $48 million UPB, up from $29 million in the first quarter, marking an increase of 68%, which outpaced the overall trend in mortgage originations.
Growth in Technology and AI Implementation
Significant investments in AI technologies are being made to increase efficiencies, reduce costs, and enhance homeowner experiences, including the use of human emulation bots, OCR, and generative AI for call summaries.
Stable RMBS and MSR Market
The RMBS funding markets remained stable with spreads at SOFR plus 20 basis points. The MSR market is well supported with demand from bank and nonbank servicers.
Improved Economic Return in July
Economic return quarter-to-date through last Friday was up about 1.5%.
Negative Updates
Significant Loss Contingency Accrual
A loss contingency accrual of $199.9 million or $1.92 per share related to ongoing litigation, leading to a book value decrease to $12.14 per share and a negative 14.5% quarterly economic return.
Comprehensive Loss in the Quarter
Including the loss contingency accrual, the company incurred a comprehensive loss of $221.8 million or $2.13 per share.
Negative Total Economic Return
For the second quarter, a total economic return of negative 14.5% was reported, and negative 1.4% without the accrual.
Impact of Litigation on Leverage
Leverage increased to 7x as a result of the litigation reserve, affecting the company's capital structure.
Company Guidance
During Two's Second Quarter 2025 Earnings Call, the company provided guidance on several financial metrics. The second quarter saw a total economic return of negative 14.5%, which adjusts to minus 1.4% when excluding a loss contingency accrual of $1.92 per share. For the first half of the year, the total economic return on book value was negative 10.3%, or 2.9% excluding the accrual. The 10-year U.S. treasury rate moved through a wide range, settling near its starting point, and the spread between 10-year and 2-year U.S. treasuries widened to 51 basis points. Mortgage rates fluctuated, with the 30-year fixed rate mortgage ending the quarter between 6.7% and 6.8%. The Federal Reserve kept rates unchanged, and several FOMC members suggested potential rate cuts of 50 to 75 basis points in the latter half of 2025. The company funded $48 million UPB in first liens, a 68% increase from the previous quarter, and brokered $44 million UPB in second liens. Two Harbors is also investing in AI technologies to enhance efficiencies and customer experience. The company issued $115 million in senior notes due in 2030 and maintained an economic debt-to-equity ratio of 7x. They reported a comprehensive loss of $221.8 million, which adjusts to $21.9 million when excluding the accrual. The MSR market remains robust, with prepayment rates on their low coupon MSR portfolio expected to stay low. As they look ahead, Two Harbors is focused on leveraging their investment portfolio and operating company to create long-term value, expecting static return estimates for their portfolio to range between 8.8% and 12.1% before leverage adjustments.Two Harbors Financial Statement Overview
Summary
Two Harbors demonstrates strong EBIT margins and efficient cash flow generation, indicating operational efficiency. However, inconsistent revenue growth, negative net income, and declining return on equity highlight potential challenges. The balance sheet shows low leverage, but the negative ROE is concerning, emphasizing the need for improved profitability and revenue stabilization.Income Statement
Two Harbors has experienced significant volatility in its revenue, with the TTM showing a substantial decline compared to the previous year. Gross profit margin has remained positive but inconsistent, indicating variable cost management. The EBIT margin is notably high in the TTM, but this is overshadowed by a negative net income, signaling potential issues in non-operational expenses or tax impacts. Overall, while some profitability measures are strong, the inconsistency in revenue and net losses are concerning.45
Neutral
Balance Sheet
The company's financial leverage appears manageable with a low debt-to-equity ratio, suggesting limited reliance on debt financing. However, the equity ratio is modest, indicating a balanced but not overly strong capital structure. Return on Equity (ROE) in the TTM is negative, reflecting the net loss, which is a critical area of concern. Despite a stable asset base, the negative ROE and recent net losses dampen the overall balance sheet health.55
Neutral
Cash Flow
Two Harbors' cash flow demonstrates strong operating cash flows relative to net income, indicating efficient cash generation from core activities. The free cash flow has shown significant growth in the TTM, reflecting improved cash management and capital expenditure control. However, the disparity between operating cash flow and net income suggests potential non-cash charges. Overall, while cash flow generation appears robust, the negative net income raises questions about sustainable profitability.60
Neutral
| Breakdown | TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 1.01B | 1.14B | 257.08M | 12.61M | -142.91M | -862.56M |
| Gross Profit | 406.30M | 510.75M | 161.59M | -81.51M | 191.42M | -1.63B |
| EBITDA | 345.94M | 344.75M | 559.83M | 582.85M | 191.42M | -1.38B |
| Net Income | -311.64M | 251.68M | -106.37M | 220.24M | 187.23M | -1.63B |
Balance Sheet | ||||||
| Total Assets | 12.96B | 12.20B | 13.14B | 13.47B | 12.11B | 19.52B |
| Cash, Cash Equivalents and Short-Term Investments | 8.98B | 7.88B | 9.06B | 1.13B | 1.15B | 16.04B |
| Total Debt | 260.94M | 9.11B | 9.93B | 10.44B | 1.24B | 965.62M |
| Total Liabilities | 11.07B | 10.08B | 10.94B | 11.28B | 9.37B | 16.43B |
| Stockholders Equity | 1.89B | 2.12B | 2.20B | 2.18B | 2.74B | 3.09B |
Cash Flow | ||||||
| Free Cash Flow | -4.68M | 86.88M | 343.51M | -6.41M | -318.64M | 9.20M |
| Operating Cash Flow | 66.02M | 201.00M | 343.51M | 623.40M | 423.51M | 631.60M |
| Investing Cash Flow | -229.61M | 895.28M | -195.78M | -2.75B | 6.31B | 14.90B |
| Financing Cash Flow | -35.96M | -1.07B | -479.40M | 1.17B | -7.30B | -14.51B |
Two Harbors Technical Analysis
Positive
10.36
Price Trends
10.11
Positive
10.46
Negative
10.98
Negative
Market Momentum
0.02
Negative
58.98
Neutral
89.78
Negative
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 10.36 is above the 20-day moving average (MA) of 9.99, above the 50-day MA of 10.11, and below the 200-day MA of 10.98, indicating a neutral trend. The MACD of 0.02 indicates Negative momentum. The RSI at 58.98 is Neutral, neither overbought nor oversold. The STOCH value of 89.78 is Negative, 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 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 (63)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
69 Neutral | $1.37B | 11.27 | 8.81% | 11.28% | 20.32% | 1.58% | |
63 Neutral | $7.02B | 13.41 | -0.50% | 6.86% | 4.08% | -25.24% | |
60 Neutral | $1.62B | 15.88 | 4.93% | 14.55% | 35.01% | 1115.85% | |
57 Neutral | $1.51B | ― | -0.35% | 9.18% | -26.29% | -342.06% | |
57 Neutral | $1.06B | 16.74 | 5.50% | 12.73% | 1.71% | -56.69% | |
55 Neutral | $1.08B | 5.06 | -14.78% | 16.73% | -21.95% | -528.94% | |
48 Neutral | $1.76B | 8.01 | -2.04% | 18.20% | 157.34% | 91.67% |
* Real Estate Sector Average
Performance Comparison
TWO
Two Harbors
10.36
-1.58
-13.23%
ARI
Apollo Real Estate
10.98
1.73
18.70%
ARR
ARMOUR Residential REIT
15.82
-1.52
-8.77%
DX
Dynex Capital
12.92
2.18
20.30%
EFC
Ellington Financial
13.83
2.29
19.84%
PMT
PennyMac Mortgage
12.60
0.40
3.28%
Two Harbors Corporate Events
Legal ProceedingsDividendsBusiness Operations and Strategy
Two Harbors Settles Lawsuit, Announces Dividends
Positive
Aug 20, 2025
On August 20, 2025, Two Harbors Investment Corp. announced a settlement agreement with Pine River entities, resolving all claims from previous lawsuits. The company agreed to a $375 million payment to Pine River, which will dismiss all claims and relinquish intellectual property rights. This resolution is seen as a significant step for Two Harbors, enabling it to focus on its strategic goals. Additionally, the company declared its third-quarter 2025 dividends for common and preferred stock, reflecting its financial position post-settlement. The company also expanded its subservicing business by signing a new client, increasing its third-party subservicing business to $31 billion in unpaid principal balance.
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
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.