Truist Securities initiates coverage on Ambac Financial stock with Buy rating

Investing.com - Truist Securities initiated coverage on Ambac Financial (NYSE:AMBC) with a Buy rating and a $10.00 price target on Tuesday. The stock, currently trading at $7.09, has seen significant volatility, with InvestingPro data showing a 38% decline over the past six months.

The firm highlighted Beat, Ambac’s incubator subsidiary, as an attractive growth vector through its ability to partner with entrepreneurial underwriters and establish new MGAs majority-owned by AMBC. This contributed to organic company-wide growth reaching the upper teens in Q1 2025. According to InvestingPro data, the company has demonstrated strong revenue growth of 125% over the last twelve months, though maintaining profitability remains a challenge.

Truist Securities noted Ambac’s robust balance sheet with approximately $180 million in holdco cash and no debt positions the company for M&A opportunities in the P&C insurance distribution sector. With potential leverage, management could have $250-$300 million of capital to invest.

The firm identified additional bottom-line opportunity through Ambac’s ability to increase its ownership stake in insurance distribution partnerships. Currently, 40% of Cirrata EBITDA is allocated to partners, but Truist expects Ambac to increase ownership to approximately 80% through 2027.

Truist Securities projects Ambac’s cash EPS to reach $0.50 in 2026 and $0.70 in 2027, with the Insurance Distribution segment generating 10% organic growth next year plus another ten percentage points from M&A. The firm considers the valuation attractive at 14x earnings and 13x EBITDA, with the $10 target representing 13x projected 2027 EBITDA.

In other recent news, Ambac Financial Group reported its first-quarter 2025 earnings, revealing a net loss of $16 million from continuing operations, which translates to a loss of $0.58 per share. Despite this, the company’s revenue exceeded expectations, reaching $41 million against a forecast of $36 million. However, the earnings per share of -$0.13 fell short of the consensus forecast of a $0.07 loss. Ambac’s revenue saw a 27% year-over-year increase, driven largely by a 129% rise in Dorado’s revenue. In another development, Ambac has extended the deadline for the sale of its legacy financial guarantee businesses to Oaktree Capital Management to December 31, 2025. The $420 million transaction is still pending final regulatory approval from the Wisconsin Office of the Commissioner of Insurance. Both Ambac and Oaktree have expressed their commitment to completing the deal. Additionally, Ambac has agreed to certain modifications in the sale agreement, including a conversion right for the warrant to purchase Ambac common stock that Oaktree will receive at closing.

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