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On Wednesday, Compass Point adjusted its stance on MGIC Investment Corporation (NYSE:MTG), downgrading the stock from Buy to Neutral, despite increasing the price target to $27.00, up from the previous $24.00. The revision followed MGIC’s fourth-quarter earnings report, which was released after the market closed on Monday. According to InvestingPro data, MTG currently trades near its 52-week high of $26.56, with a strong overall financial health score rated as "GREAT" by the platform’s comprehensive analysis system.
The company announced an adjusted earnings per share (EPS) of $0.72 for the fourth quarter of 2024, surpassing the consensus estimate of $0.66. This outperformance was attributed to a $54 million favorable adjustment in loss reserves, recalculated based on earlier delinquencies. Additionally, MGIC paid a substantial $400 million dividend to its holding company during the same quarter, bolstering the holding company’s liquidity by $235 million quarter-over-quarter to a total of $1,076 million. The company maintains a strong dividend profile, having raised its dividend for six consecutive years, with a current yield of 2.03%. Get deeper insights into MTG’s financial performance with a InvestingPro subscription, which offers exclusive access to detailed financial metrics and expert analysis.
Despite the positive earnings beat, the higher interest rate environment has weighed on new insurance written (NIW) volumes across the industry, resulting in minimal growth in insurance in force (IIF) for MGIC, which saw only a 0.9% year-over-year increase. This trend is expected to persist into fiscal year 2025, in line with current mortgage market forecasts.
The analyst from Compass Point noted that while the credit risk remains low for MGIC’s current book of business, it is anticipated to rise over time as the proportion of higher loan-to-value (LTV) vintages grows. This shift is likely to result in increased reserving for new delinquency notices as larger vintages from fiscal years 2020 to 2022 enter their peak years for default and loss emergence. Such changes could place pressure on MGIC’s earnings potential in fiscal year 2025 and potentially beyond.
Given the projections for lower IIF growth, MGIC is expected to continue allocating more capital towards share repurchases, mirroring its strategy from the previous fiscal year. The company’s financial strategies and market position will continue to be monitored as the mortgage industry adapts to the evolving economic landscape. InvestingPro analysis reveals management’s aggressive share buyback program, supported by strong fundamentals including a healthy current ratio of 2.34 and robust cash flows that sufficiently cover interest payments. The company’s impressive Piotroski Score of 8 further underscores its financial strength. Discover more exclusive insights and detailed analysis in InvestingPro’s comprehensive research report, available along with 8 additional ProTips for MTG.
In other recent news, mortgage insurance company Essent Group (NYSE:ESNT) has had its stock target lowered by Keefe, Bruyette & Woods, with analyst Bose George reducing the price target to $72.00 from the previous $75.00 while maintaining an Outperform rating. The firm’s analysis highlighted Essent Group’s resilience in a scenario where interest rates remain higher for an extended period and loan originations are low. In contrast, MGIC Investment was downgraded to Market Perform from Outperform by the same firm due to valuation concerns.
Keefe, Bruyette & Woods also set a price target of $29.00 for MGIC Investment’s shares, citing more attractive valuations from competitors such as Essent Group. In the recent quarter, MGIC Investment reported a net income of $200 million and an annualized return on equity of 15.6%, indicating a strong performance. The company also repurchased 5.2 million shares for $123 million and an additional 2.9 million shares for $72 million, demonstrating confidence in its business strategies.
These developments reflect the ongoing dynamics within the mortgage insurance sector, as firms adjust their positions based on new insights and market conditions.
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