Two Harbors Investment (TWO) PT Lowered at KBW, Reflecting Book Value Decline

Keefe, Bruyette & Woods analyst Bose George lowered the price target on Two Harbors Investment (NYSE: TWO) to $11.00 (from $13.25) while maintaining a Market Perform rating.

The analyst commented: "Following the recent ruling in its long-running litigation against its prior external manager, PRCM Advisors (Pine River), TWO announced it was taking a $198.9 million charge, ~$1.90/sh (13% of Book Value). This suggests a pro forma book value of ~12.75, and we estimate MTM book value of ~12.20 given spread widening since quarter-end. We are reducing our EPS estimates and assume a dividend cut to $0.38 from $0.45. We are lowering our price target to $11, down from $13.25, reflecting the decline in book value, which should drive a lower economic return.

With the decline in capital and the widening of spreads seen in the first two months of the quarter, we estimate book value is roughly $12.20, down from $14.66 in 1Q25. Our new $11 price target is roughly equal to 90% of our MTM book value estimate. Our multiple remains unchanged. While the litigation risk appears to be closer to being done, we continue to use a slightly lower price/book multiple vs similarly sized peers like DX to reflect the risk that there could be further charges related to the litigation. However, we would think that further charges are likely to be modest."

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