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Old Republic International Corporation Message Board

  • towniebiker towniebiker Nov 15, 2007 8:56 AM Flag

    McDonald Report- Not pretty!

    Old Republic International Corporation (ORI) � Elizabeth C. Malone, CFA , Ed Imsirovic
    We are maintaining our HOLD (3) rating on ORI. We believe the Company is ably managed but anticipate the challenges in the Mortgage Insurance operation and, to a lesser extent, the Title Insurance business will cause a significant decline in earnings and thus return on equity despite profitability in the General Insurance line. Our outlook for Mortgage Insurance has become more pessimistic in terms of the next several quarters after spending a day marketing in Boston on November 14 with A.C. Zucaro, ORI's Chief Executive Officer, Christopher Nard, President of Old Republic Mortgage Guaranty Companies and James Kellogg, President and Chief Operating Officer. We believe losses will accumulate in the Mortgage Insurance Division over the next two years as the Company works through the difficult market conditions. As a consequence, we are lowering our 4Q07 EPS estimate to $0.15 compared to our previous estimate of $0.29. After adjusting for our 4Q07 estimate change, our new FY07 EPS estimate is $1.18, representing a 39% decline compared to a year ago $1.94. The reduced FY07 estimate compares to our previous estimate of $1.32. We are also lowering our FY08 estimate to $0.88 compared to our previous estimate of $1.15. Despite these near-term predictions, we view the long-term prospects for ORI in a positive light. First, the Company and the current management have weathered through several cycles in all three of ORI's businesses. Second, ORI has taken aggressive remedial steps to improve the pricing and quality of new business written in the Mortgage Insurance line. Third, ORI has a strong balance sheet with a conservative underwriting approach. Fourth, we anticipate that despite losses in both Title and Mortgage Insurance, ORI will generate positive earnings and grow total book value. Finally, we expect the Company will continue its practice of raising the dividend annually.

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