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Two Harbors (TWO)
NYSE:TWO
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Two Harbors
(NYSE:TWO)
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Rating:51Neutral
Price Target:
$12.00
â–²(1.27% Upside)
The score is primarily weighed down by weak profitability and negative operating/free cash flow despite improved leverage. Technicals are moderately supportive but not strongly bullish, while valuation is helped by a very high dividend yield but tempered by losses (negative P/E). Earnings commentary was balanced, citing improved liquidity and Q4 performance but also tighter spreads, higher sensitivity, and dividend uncertainty.
Positive Factors
MSR Scale from Merger
The all-stock merger that doubles MSR scale to ~$400B materially strengthens servicing and origination integration. Persistently larger MSR inventory and closer origination alignment create durable cost synergies, distribution advantages and higher fee-income potential over months.
Improved Liquidity and Deleveraging
Substantially higher cash and repayment of convertible debt reduces refinancing and liquidity risk, improving funding optionality for repo/MSR facilities. This durable balance-sheet repair supports steady portfolio funding and less forced asset sales across the coming quarters.
Agency MBS Focus Lowers Credit Risk
Concentration in agency MBS with GSE guarantees materially reduces credit/default risk versus private-label mortgage assets. That structural credit protection supports more stable interest-income generation and lower expected credit volatility over a multi-month horizon.
Negative Factors
Negative Operating and Free Cash Flow
Persistent negative operating and free cash flow undermines dividend funding and forces reliance on financing or asset sales. Over the next several months this weak cash conversion constrains reinvestment, hedging capacity and strategic optionality unless cash generation recovers.
Rising Spread and Prepayment Sensitivity
Higher spread and prepayment sensitivity means modest moves in rates or RMBS spreads now produce larger book‑value and economic-return swings. This structural increase in portfolio convexity elevates downside risk to returns and capital stability over months.
Reduction in Owned Servicing
Quarterly sales of MSR and lower owned servicing reduce durable fee income and tie revenue more to trading and mark-to-market activity. Less owned servicing weakens predictable recurring cash flows and increases reliance on volatile capital-market outcomes over the medium term.
Two Harbors (TWO) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$1.23B
Dividend Yield14.29%
Average Volume (3M)3.05M
Price to Earnings (P/E)―
Beta (1Y)0.73
Revenue Growth22.48%
EPS Growth50.49%
CountryUS
Employees477
SectorReal Estate
Sector Strength53
IndustryREIT - Mortgage
Share Statistics
EPS (TTM)0.26
Shares Outstanding104,806,310
10 Day Avg. Volume2,412,539
30 Day Avg. Volume3,054,881
Financial Highlights & Ratios
PEG Ratio-0.02
Price to Book (P/B)0.58
Price to Sales (P/S)1.45
P/FCF Ratio14.10
Enterprise Value/Market Cap0.53
Enterprise Value/Revenue1.54
Enterprise Value/Gross Profit1.17
Enterprise Value/Ebitda1.14
Forecast
1Y Price Target
$12.50Price Target Upside5.49% Upside
Rating ConsensusHold
Number of Analyst Covering5
EPS Forecast (FY)N/A
Revenue Forecast (FY)N/A
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 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:Feb 02, 2026
(Q4-2025)
| Next Earnings Date:May 04, 2026
Earnings Call Sentiment Neutral
The call presented a balanced view: near-term and tactical performance highlights (Q4 economic return +3.9%, book value uptick, strong Q4 RMBS performance, record DTC funding and improved liquidity including repayment of convertible notes) and a transformational strategic benefit from the announced merger with UWM (doubling MSR scale). Offsetting these positives were material challenges including a full-year 2025 economic return of -12.6 before an adjustment for a litigation charge, active MSR sales that reduced owned servicing, reduced net interest/servicing income and mark-to-market headwinds, tighter RMBS spreads that materially lower upside to book value and modestly higher prepayment and spread sensitivity. Management’s tone was constructive about the merger and defensive on portfolio positioning, but uncertainty around spreads, volatility, and near-term dividend decisions tempers the overall outlook.Q4-2025 Updates
Positive Updates
Strategic Merger with UWM and MSR Scale Expansion
Announced merger with United Wholesale Mortgage (UWM); pro forma MSR portfolio doubles to $400 billion, expected to provide scale for origination, enhanced servicing capabilities (Roundpoint), and strategic alignment to drive growth and shareholder upside.
Strong Quarterly Economic Return
Generated a positive total economic return of 3.9% in Q4 2025; book value increased to $11.13 per share from $11.04 at September 30 (including a $0.34 common stock dividend); comprehensive income of $50.4 million, or $0.48 per share.
Portfolio Performance — Mortgage Assets Outperformed
Mortgage assets significantly outperformed hedges in Q4; portfolio at 12/31 was $13.2 billion (including $9.0B settled positions and $4.2B in TBAs); RMBS spreads tightened materially (current-coupon nominal spreads tightened ~30 bps to 114 bps vs swap curve; OAS tightened ~23 bps to 45 bps), contributing to positive fixed income performance.
Record Growth in Direct-to-Consumer (DTC) Lending
DTC platform funded $94 million in first and second liens in Q4 — a 90% increase from Q3 — with an additional $38 million in pipeline and $58.5 million brokered in second liens (roughly flat QoQ).
Improved Liquidity and Capital Actions
Ended the quarter with over $800 million in cash; repaid $261.9 million of convertible senior notes in full on 01/15/2026; RMBS funding markets remained stable with repo spreads around SOFR + 23 bps and weighted average days-to-maturity of agency RMBS repo at 54 days.
MSR Portfolio Health Metrics
MSR price multiple remained stable at 5.8x; 60+ day delinquency stayed low under 1%; settled ~ $400 million UPB of MSR from flow acquisitions/recapture in Q4 and continue to see prepays generally below projections for most of the portfolio (MSR CPR 6.4%).
Risk Management and Defensive Positioning
Economic debt-to-equity modestly lower at ~7x; management reduced leverage and mortgage risk slightly during the quarter and maintains a paired MSR-RMBS construction designed to reduce exposure to spread volatility.
Negative Updates
Full-Year 2025 Negative Economic Return (Pre-Adjustment)
Reported total economic return on book value for full-year 2025 of negative 12.6%; company notes an $3.50 per share previously recorded litigation settlement expense — excluding that item, full-year return would be positive 12.1%.
Reduction in Owned Servicing and Sales Activity
Sold an additional $10 billion of MSR (increasing third-party subservicing to $40B from $30B QoQ) and reduced total owned servicing to approximately $162B from $176B the prior quarter; sold $9.6B UPB on a servicing-retained basis in Q4, reducing net servicing holdings.
Reduced Net Interest and Servicing Income and Mark-to-Market Impact
Net interest and servicing income decreased due to MSR sales and lower float income (float fell because of lower rates and seasonal balance declines); mark-to-market gains/losses were $15.5 million lower QoQ due to MSR runoff and yield-curve steepening.
Tighter RMBS Spreads Reduce Upside Potential
Large tightening of RMBS spreads and sales of inverse IOs reduced prospective return potential versus prior quarter; management notes spreads are historically tight on some measures, limiting further book-value upside from spread tightening (further tightening since quarter-end).
Higher Prepayment and Increased Spread Sensitivity
MSR portfolio CPR increased modestly by 0.4 percentage points QoQ to 6.4%; specified-pool CPR rose to 8.6% from 8.3% (up 0.3 ppt). Portfolio sensitivity to spread changes increased from 2.3% to 3.7% if spreads tighten 25 bps, indicating modestly higher exposure to spread moves.
Dividend and Return Outlook Uncertainty
Management indicated prospective static return potential has declined marginally (management estimated portfolio static return after expenses 6.9%–10.2% and common equity 5.8%–11.1%), and said dividend decisions are still to be determined later in the quarter given tighter spreads and evolving market conditions.
Macro and Volatility Risks
Interest-rate and volatility environment is unusually low (one-month realized volatility of 10-year swaps in bottom 5th percentile), creating risk that future policy changes (e.g., Fed leadership transition) or other catalysts could increase volatility and pressure funding or spreads.
Company Guidance
Management's guidance quantified their forward-looking return and portfolio targets: they plan to allocate ~65% of capital to servicing (static return 10–13%) and the remainder to securities (static return 10–14%), implying a portfolio static return of 6.9%–10.2% before leverage and a prospective static return on common equity of 5.8%–11.1% (quarterly static return per share $0.16–$0.31); Q4 book value was $11.13 (vs. $11.04), Q4 economic return +3.9%, full‑year 2025 economic return on book value -12.6% (or +12.1% excluding a $3.50/share litigation charge). Key MSR and balance‑sheet metrics cited include a pro‑forma MSR scale of $400B post‑merger, MSR price multiple 5.8×, 60+ day delinquencies <1%, MSR CPR 6.4% (up 0.4 ppt), specified‑pool CPR 8.6% (from 8.3%), settled ~$400M UPB from flow/recapture and sold $9.6B UPB servicing‑retained, third‑party subservicing $40B (from $30B) and owned servicing ~ $162B (from $176B); liquidity and funding metrics: cash >$800M, convertible notes repaid $261.9M (1/15/2026), repo spreads ~SOFR+23bps, weighted agency RMBS repo days‑to‑maturity 54 days, $1.6B bilateral MSR borrowings, $1.1B unused MSR financing capacity, $71.5M drawn on advances with $78.5M available; and portfolio/market sensitivities: total portfolio $13.2B ($9B settled, $4.2B TBAs), economic debt/equity ~7x, sensitivity to a 25bps spread tightening rose from 2.3% to 3.7%, current‑coupon nominal spreads tightened 30bps to 114bps vs. swaps and OAS vs. SOFR tightened 23bps to 45bps, with two‑year options on 10‑yr swap at 79bps.Two Harbors Financial Statement Overview
Summary
Mixed fundamentals: revenue growth is positive (+12.04%) and leverage improved sharply (debt-to-equity 0.15 TTM vs. 4.29 prior year), but net profitability remains weak (net margin -17.84%) and cash generation is concerning with negative operating and free cash flow in the TTM period.Income Statement
The income statement shows a mixed performance. The TTM data indicates a gross profit margin of 51.81%, which is decent, but the net profit margin is negative at -17.84%, reflecting a loss. Revenue growth is positive at 12.04%, indicating some recovery. However, the EBIT and EBITDA margins are both at 38.19%, showing operational efficiency but not translating into net profitability.45
Neutral
Balance Sheet
The balance sheet reveals a significant reduction in debt, with a debt-to-equity ratio of 0.15 in the TTM period, down from 4.29 in the previous year, indicating improved leverage. However, the return on equity is negative at -10.15%, suggesting inefficiencies in generating returns for shareholders. The equity ratio is not provided, but the reduction in debt is a positive sign.50
Neutral
Cash Flow
Cash flow analysis shows a concerning trend with negative operating cash flow and free cash flow in the TTM period. The free cash flow growth rate is extremely high at 3463.61%, but this is due to a low base effect. The operating cash flow to net income ratio is negative, indicating cash flow issues. The free cash flow to net income ratio is high at 7.91, suggesting reliance on non-operational cash flow sources.40
Negative
| Breakdown | TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 420.82M | 845.84M | 640.49M | 407.18M | 255.22M | -1.56B |
| Gross Profit | 554.51M | 511.01M | 31.79M | 407.18M | 255.22M | -1.56B |
| EBITDA | 568.46M | 951.08M | 560.54M | 582.85M | 280.59M | 0.00 |
| Net Income | -189.29M | 298.17M | -106.37M | 220.24M | 187.23M | -1.63B |
Balance Sheet | ||||||
| Total Assets | 10.87B | 12.20B | 13.14B | 13.47B | 12.11B | 19.52B |
| Cash, Cash Equivalents and Short-Term Investments | 770.76M | 504.88M | 729.82M | 8.46B | 8.32B | 16.04B |
| Total Debt | 8.43B | 1.28B | 1.89B | 1.80B | 1.24B | 965.62M |
| Total Liabilities | 9.09B | 10.08B | 10.94B | 11.28B | 9.37B | 16.43B |
| Stockholders Equity | 1.77B | 2.12B | 2.20B | 2.18B | 2.74B | 3.09B |
Cash Flow | ||||||
| Free Cash Flow | -48.56M | 86.88M | 30.87M | -6.41M | -318.64M | 9.20M |
| Operating Cash Flow | -49.27M | 201.00M | 343.51M | 623.40M | 423.51M | 631.60M |
| Investing Cash Flow | 2.15B | 895.28M | -195.78M | -2.75B | 6.31B | 14.90B |
| Financing Cash Flow | -1.83B | -1.07B | -479.40M | 1.17B | -7.30B | -14.51B |
Two Harbors Technical Analysis
Neutral
11.85
Price Trends
11.01
Positive
10.18
Positive
9.98
Positive
Market Momentum
0.52
Positive
47.03
Neutral
18.03
Positive
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 11.85 is below the 20-day moving average (MA) of 12.51, above the 50-day MA of 11.01, and above the 200-day MA of 9.98, indicating a neutral trend. The MACD of 0.52 indicates Positive momentum. The RSI at 47.03 is Neutral, neither overbought nor oversold. The STOCH value of 18.03 is Positive, 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
UnderperformOutperform
Sector (65)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
65 Neutral | $2.17B | 12.19 | 3.79% | 4.94% | 3.15% | 1.96% | |
63 Neutral | $1.17B | 6.20 | 15.59% | 20.03% | 72.30% | -54.02% | |
61 Neutral | $976.99M | 11.24 | 6.90% | 14.90% | 5.52% | -47.72% | |
61 Neutral | $846.26M | 12.99 | 5.88% | 13.31% | -0.93% | -1.92% | |
55 Neutral | $1.04B | 12.12 | 6.66% | 12.69% | -15.48% | -36.45% | |
51 Neutral | $1.23B | -2.42 | -9.69% | 14.29% | 22.48% | 50.49% | |
50 Neutral | $1.03B | -30.42 | 2.10% | 11.40% | 9.46% | -111.44% |
* Real Estate Sector Average
TWO
Two Harbors
11.81
0.70
6.32%
CIM
Chimera Investment
12.42
-1.57
-11.20%
MFA
MFA Financial
9.66
0.22
2.33%
PMT
PennyMac Mortgage
12.10
0.21
1.74%
ORC
Orchid Island Capital
7.81
1.00
14.63%
FBRT
Franklin BSP Realty Trust
10.41
-1.29
-11.06%
Two Harbors Corporate Events
Business Operations and StrategyExecutive/Board ChangesM&A Transactions
Two Harbors Announces Merger with UWM Holdings
Neutral
Dec 17, 2025
On December 17, 2025, Two Harbors Investment Corp. announced a planned merger agreement with UWM Holdings Corporation, where Two Harbors will merge into a wholly-owned subsidiary of UWM. The merger deal, valued at approximately $1.3 billion in equity, includes exchanging shares of Two Harbors common stock for UWM common and preferred stock. The agreement has been approved by both companies’ boards, and its completion depends on regulatory clearances, shareholder approval, and other customary conditions. Additionally, Two Harbors amended its severance benefits plan to protect employees during the transition and accelerated payments, bonuses, and equity for select executives as part of tax planning measures and a restructured equity award process for CEO William Greenberg.
The most recent analyst rating on (TWO) stock is a Hold with a $10.00 price target. To see the full list of analyst forecasts on Two Harbors stock, see the TWO Stock Forecast page.
Business Operations and StrategyM&A Transactions
Two Harbors Announces Merger Agreement with UWM
Positive
Dec 17, 2025
On December 17, 2025, Two Harbors Investment Corp. and UWM Holdings Corporation announced a definitive merger agreement, where UWM will acquire Two Harbors in an all-stock transaction valued at $1.3 billion. The acquisition aims to enhance UWM’s servicing capabilities and double its mortgage servicing portfolio to $400 billion, creating synergies worth approximately $150 million annually. The merger, unanimously approved by both companies’ Boards, strengthens UWM’s leadership in the mortgage industry, expands its market reach, and provides meaningful opportunities for stockholders, brokers, and consumers. This strategic alignment also anticipates significant operational efficiencies and enhanced financial stability for the combined entity.
The most recent analyst rating on (TWO) stock is a Hold with a $10.00 price target. To see the full list of analyst forecasts on Two Harbors stock, see the TWO Stock Forecast page.
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.