Two Harbors Investment Corp (NYSE:TWO) has posted strong book value growth and has diversified its asset base to include nonagency exposure and new production securitization and potentially mortgage servicing rights, leading Douglas Harter, Vice President at Credit Suisse Group, to think the REIT should trade at a larger premium.
“Two Harbors has been one of our favorite ideas for quite some time and remains that way. They put up very strong book value growth in the first quarter, and because of their nonagency exposure — nonagency prices quarter to date in the second quarter continue to go higher — their book value is likely higher as of today. So that probably puts them trading at only 2% to 3% premium today,” Harter said.
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Harter says TWO has a history of book value growth, and the way they diversify their risk makes for less volatile performance going forward, and the REIT has an outstanding management team in its industry.
“I think the combination of their track record, their hedging makes us feel very comfortable with that. Also, layer in that they have been active in terms of diversifying their investment base into new production securitization and looking to buy mortgage servicing rights. I think they are very much constructing a portfolio that should be able to have a stable performance going forward; again with a best-in-class management team makes us think that they should trade at a bigger premium,” Harter said.
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