Two Harbors Investment Corp. TWO is scheduled to report third-quarter 2024 results on Oct. 28, 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 17 cents, significantly beating the Zacks Consensus Estimate of 2 cents. Net interest income was negative $38.3 million in the quarter compared with Zacks Consensus Estimate of negative $45.9 million.  

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 220.73%.

Key Factors to Influence TWO in Q3

The mREIT sector witnessed higher volatility in the fixed-income markets during the third quarter, which is likely to have increased asset impairment risks and hedging mismatches in the quarter under review. 

Nonetheless, a positively sloped yield curve is anticipated to have supported mortgage REITs’ valuations. With a steeper yield curve, mortgage REITs are likely to have witnessed a tangible book value increase as spreads on benchmark indices have tightened in the quarter. This is likely to have increased TWO’s book value per share in the quarter under review.

Modest new Agency loan originations in the quarter under review are expected to have supported the company’s fee-based servicing portfolio. The Zacks Consensus Estimate for TWO's servicing income is pegged at $175.6 million in the third quarter, remaining stable from the previous quarter.

The 30-year fixed mortgage rates decreased to 6.2% at the end of the third quarter from 6.86% in second-quarter 2024 and from the high of 7.31% in third-quarter 2023. This is likely to have resulted in a rise in mortgage demand. Supported by the lower mortgage rates, refinancing activities witnessed a significant surge. Amid this, a significant portion of TWO’s mortgage-backed securities holdings are anticipated to have witnessed elevated levels of constant prepayment rates. This is expected to have positively impacted net premium amortization in the third quarter, thereby supporting growth in interest income and average asset yield.

The Zacks Consensus Estimate for total interest income is pegged at  $115 million, indicating a marginal decline from the prior quarter.

On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. However, the Fed kept the interest rates at a 23-year high of 5.25-5.5% during a major part of the quarter. Given this, the company is expected to have seen higher funding costs. This is likely to have affected net interest income (NII) growth of TWO in the to-be-reported quarter. The Zacks Consensus Estimate for NII is pegged at negative $39 million compared with negative $38.3 million reported in the prior quarter. 

The company’s activities in the third quarter were sufficient to gain analysts’ confidence. As a result, the Zacks Consensus Estimate for third-quarter earnings has significantly increased, rising to 35 cents from 11 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 conclusively predict 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’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Two Harbors Investment is 0.00%.

Zacks Rank: The company currently sports a Zacks Rank of 1.

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 American Healthcare REIT Inc. AHR and $Public Storage(PSA-N)$ PSA.

American Healthcare REIT has an Earnings ESP of +1.56% and flaunts a Zacks Rank of 1 at present. AHR is scheduled to report third-quarter 2024 results on Nov. 12. You can see the complete list of today’s Zacks #1 Rank stocks here.

Public Storage currently has an Earnings ESP of +0.26% and a Zacks Rank of 3. PSA is slated to report third-quarter results on Oct. 30.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Public Storage (PSA) : Free Stock Analysis Report

Two Harbors Investments Corp (TWO) : Free Stock Analysis Report

American Healthcare REIT, Inc. (AHR) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research