Two Harbors Investment to Report Q4 Earnings: What's in the Cards?

Two Harbors Investment Corp. TWO is scheduled to report fourth-quarter 2024 results on Jan. 29, after market close.
 
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

In the last reported quarter, this real estate investment trust (REIT), which focuses on investing in financing, and managing residential mortgage-backed securities and mortgage loans, posted earnings available for distribution per share of 13 cents, missing the Zacks Consensus Estimate by 62.9%.

Two Harbors Investment has a decent earnings surprise history. Its earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average surprise being 231.3%.

Two Harbors Investments Corp Price and EPS Surprise

Two Harbors Investments Corp price-eps-surprise | Two Harbors Investments Corp Quote

Key Factors to Influence TWO in Q4

Higher volatility in the fixed-income markets is likely to have increased asset impairment risks and hedging mismatches for TWO in the quarter under review.

Nonetheless, a positively sloped yield curve might have supported mortgage REIT’s valuations. Further, the yield curve steepened and then normalized during the quarter. With this, agency mortgage REITs are likely to have witnessed a tangible book value increase as spreads on benchmark indices have tightened during the quarter. This is likely to have increased TWO Investment’s book value per share in the quarter to be reported.

The Zacks Consensus Estimate for TWO's servicing income is pegged at $166 million in the fourth quarter, down 3.3% from the previous quarter.

The 30-year fixed mortgage rates in the fourth quarter of 2024 were close to 6.8%, slightly higher than the 6.2% observed at the end of the third quarter. This is likely to have resulted in a rise in mortgage demand. However, refinancing activities and origination volume remained decent.

Amid this, a large part of TWO’s Investment’s mortgage-backed securities (MBS) holdings is anticipated to have witnessed elevated levels of constant prepayment rates. This is expected to have positively impacted net premium amortization in the fourth quarter, supporting growth in interest income and average asset yield.

The Zacks Consensus Estimate for total interest income is pegged at $118 million, indicating a 4.8% rise from the prior quarter.

Since September 2024, the Federal Reserve has reduced interest rates by 100 basis points (bps). Given this, the company is expected to have seen lower funding costs. This is likely to have supported net interest income (NII) growth of TWO in the to-be-reported quarter. The Zacks Consensus Estimate for NII is pegged at negative $32.5 million compared with negative $42.3 million reported in the prior quarter.

The company’s activities in the fourth quarter were sufficient to gain analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings has significantly increased, rising to 21 cents from 12 cents over the past seven days. The metric indicates a significant year-over-year improvement.

What the Zacks Model Reveals for Two Harbors Investment

Per our model, it cannot be conclusively predicted that Two Harbors Investment will beat the Zacks Consensus Estimate this time around. This is because the company lacks the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Two Harbors Investment is -51.2%.

Zacks Rank: The company currently has a Zacks Rank of 2.

Upcoming Release Dates of Other REITs

Two stocks from the broader REIT sector, which you may want to consider, as our model shows that these have the right combination of elements to report a surprise this time around, are New York Mortgage Trust NYMT and MFA Financial, Inc. MFA.

New York Mortgage Trust is expected to report fourth-quarter 2024 results on Feb. 19. NYMT has an Earnings ESP of +17.39% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank  stocks here.

MFA Financial is expected to report fourth-quarter 2024 results on Feb. 19. MFA has an Earnings ESP of +2.56% and a Zacks Rank of 2 at present.

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