TWO Intrinsic Value – Two Harbors Investment Q1 Profits Decline Due to Increased Hedging Costs and Wider Spreads
May 3, 2023
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Two Harbors Investment ($NYSE:TWO) Corp’s first quarter profits were recently reported and the results were not what investors were hoping for. The company experienced a decline in profits due to increased hedging costs and wider spreads in the mortgage markets. This was a significant setback for the company which had been performing well overall. Two Harbors Investment Corp is a real estate investment trust (REIT) that invests in residential mortgage-backed securities (RMBS). The company has its headquarters in Minneapolis, Minnesota, and it is listed on the New York Stock Exchange under the symbol TWO. It primarily invests in agency RMBS backed by the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and other government-sponsored entities.
Two Harbors also invests in a variety of other asset classes, including non-agency RMBS and commercial mortgage-backed securities (CMBS). Hedging is a strategy which allows investors to protect their investments from adverse price movements in the markets, but it can also be expensive. Wider spreads mean that investors have to pay more for their investments, which can also lead to reduced profits. These factors ultimately combined to lead to a decline in Two Harbors’ Q1 profits.
Market Price
Their stock opened the day at $13.9 but closed at $13.7, a decrease of 1.4% from the previous closing price. Further details of the company’s financial performance will be discussed at the upcoming investor conference call. Live Quote…
About the Company
Income Snapshot
Below shows the total revenue, net income and net margin for TWO. More…
| Total Revenues | Net Income | Net Margin |
| 407.18 | 186.78 | – |
Cash Flow Snapshot
Below shows the cash from operations, investing and financing for TWO. More…
| Operations | Investing | Financing |
| 623.4 | -2.75k | 1.17k |
Balance Sheet Snapshot
Below shows the total assets, liabilities and book value per share for TWO. More…
| Total Assets | Total Liabilities | Book Value Per Share |
| 13.47k | 11.28k | 23.74 |
Key Ratios Snapshot
Some of the financial key ratios for TWO are shown below. More…
| 3Y Rev Growth | 3Y Operating Profit Growth | Operating Margin |
| – | – | – |
| FCF Margin | ROE | ROA |
| – | – | – |
Analysis – TWO Intrinsic Value
After extensively analyzing the financials of TWO HARBORS INVESTMENT, GoodWhale has determined the fair value of the company’s stock to be around $22.3. This figure was calculated using our proprietary Valuation Line, which is based off detailed calculations and past market data. At the time of writing, TWO HARBORS INVESTMENT stock is being traded at $13.7, representing a significant 38.6% discount to its fair value. This presents a great opportunity for investors looking to purchase undervalued yet profitable stocks. More…
Peers
The company was founded in 2007 and is headquartered in New York, New York. Two Harbors Investment Corp’s competitors include Chimera Investment Corp, Annaly Capital Management Inc, and Ellington Financial Inc. These companies are also involved in the business of investing in mortgage-related assets.
– Chimera Investment Corp ($NYSE:CIM)
Chimera Investment Corporation is a real estate investment trust that primarily invests in mortgage-backed securities. The company has a market cap of $1.45 billion as of 2022. Chimera Investment Corporation is headquartered in New York, New York.
– Annaly Capital Management Inc ($NYSE:NLY)
Annaly Capital Management Inc is a real estate investment trust that primarily focuses on investing in and financing mortgage-backed securities. As of December 31, 2020, the Company’s portfolio consisted of approximately $106.6 billion in assets, including $103.1 billion in residential mortgage-backed securities and $3.5 billion in commercial mortgage-backed securities.
– Ellington Financial Inc ($NYSE:EFC)
Ellington Financial Inc is a mortgage real estate investment trust that acquires, finances, and manages residential and commercial mortgage-backed securities and mortgage loans. The company has a market cap of $817.82 million as of 2022. The company was founded in 2007 and is headquartered in Old Greenwich, Connecticut.
Summary
The company also experienced higher than average operating expenses, which weighed on overall net income. Overall, investors should be aware of the company’s current financial situation and be mindful of any potential risks associated with their investments.
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