TWO-PC
Two Harbors Investment Corp.
$24.80
Real Estate Investment Trust
85%
P/FFO × Default REIT Multiple
Moderate
·
Conviction
Undervalued
Trading 27.8% below fair value
You pay
$24.80
Bear
$28.95
Fair
$34.34
Bull
$39.73
Bear
$28.95
+16.7%
$0.85 FFO × 14x
Fair
$34.34
+38.5%
$0.85 FFO × 17x
Bull
$39.73
+60.2%
$0.85 FFO × 20x
Key Value Driver
FFO/share ($0.85) × default P/FFO multiple
Implied Market Multiple
29.1x
Summary
Our base-case estimate uses P/FFO × Default REIT Multiple. We then blend that result with the average analyst price target of $16.00 from 8 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $34.34 per share.
Warnings
Standard profit figures are misleading for real estate companies — large non-cash accounting charges make profits look artificially low. Dividend yield and funds from operations are better measures.
Dividend yield of 9.5% is unusually high — make sure the company generates enough cash to keep paying it.
Dividend-based valuation: $95.94 (146% above our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Wall Street's average price target is $16.00 (from 8 analysts). Our estimate is 143% above the consensus -- consider that gap carefully.
Key Risks
- P/E and EV/EBITDA are structurally wrong for REITs — use P/FFO and NAV
- Interest rate sensitivity: REIT multiples compress when rates rise
- FFO approximation (NI + D&A) may include gains on property sales — verify