Two Harbors (NYSE:TWO) Investment Corp. (NYSE:TWO) reported a book value of $15.36 per share in its third quarter 2023 earnings call, reflecting a negative 3.5% total economic return. Despite this, the company posted an income of $0.51 per share, excluding market-driven value changes, which represents a 12.6% annualized return. A significant highlight was the acquisition of RoundPoint Mortgage Servicing, which Two Harbors expects to improve economics and bring economies of scale.
Key takeaways from the call include:
- The acquisition of RoundPoint Mortgage Servicing is expected to add $25 million to $30 million to pre-tax earnings in 2024.
- Two Harbors plans to grow RoundPoint's third-party sub-servicing business and transfer its Mortgage Servicing Rights (MSR) portfolio to RoundPoint.
- The company has already paid $10 million of the anticipated $16 million in deporting fees to move their loans from sub-servicers to RoundPoint.
- Two Harbors expects a return of approximately 60% on their invested capital.
- The company believes it is well-positioned to capitalize on opportunities in agency RMBS and MSR, despite market volatility.
William Greenberg, a representative from Two Harbors, discussed the company's plans and strategies during the call. He clarified that the acquisition of RoundPoint does not attract more capital to the business but would add to their returns. He also emphasized the company's balanced market position and its potential to provide underserved services in the sub-servicing marketplace.
Greenberg also highlighted the company's active management of its portfolio, including coupon selection and hedging strategies. He confirmed that they hedge the float components of the MSR to protect against potential interest rate fluctuations. He expressed satisfaction with their current capital allocation and the relative mix of MSR and Mortgage-Backed Securities (MBS).
Despite the decrease in the company's book value, the acquisition of RoundPoint and the potential in the sub-servicing market present opportunities for Two Harbors. The company remains optimistic about its position in the fixed income markets and its return potential in the current environment.
InvestingPro Insights
Drawing from real-time data and insights from InvestingPro, it's clear that Two Harbors Investment Corp . is a company with several noteworthy financial aspects. With a market cap of 1120M USD and a P/E ratio of 32.14 as of Q3 2023, the company's valuation is substantial. Interestingly, the company has a P/E ratio adjusted for the last twelve months as of Q3 2023 of 29.7, indicating a high earnings multiple.
Two key InvestingPro Tips for this company include the fact that it has seen a significant return over the last week, with a 1 Week Price Total Return of 17.75%. This suggests that the stock has been performing well in the short term. Additionally, Two Harbors has been consistently rewarding its shareholders, maintaining dividend payments for 15 consecutive years. As of Q3 2023, the company offers a considerable dividend yield of 15.5%.
InvestingPro offers many more insightful tips and data points that can help investors make informed decisions. These include aspects like revenue growth, gross profit margin, and more. For a comprehensive understanding of Two Harbors Investment Corp. and other companies, consider exploring InvestingPro's extensive array of tips and data.
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