Tommie, It is a slow ride from $9 to $20. Patience should pay off nicely in a year or two. Lift off!
Many things have changed for MGIC and many things have stayed the same. The number of shares is about three times as many as it was when the price was $60-$70 per share. The other negative and positive factors that are different than prior to the bust will probably offset each other over the next few years.
Based on the higher number of shares, I am expecting the price to rise to $20 to $25 with in about 2 to 3 years.
I have been listening to the conference calls every quarter for six years or more. The CEO has always been very guarded in previous calls. In this conference call, he was almost giddy.
The CEO expects market share to increase. Currently 18.5% with out BofA as a client.
The CEO expects NIW to be higher in 2014 than 2013. 2013 NIW was about $30 billion.
The conference call was excellent. Many positive things were mentioned by management.
To me normal, loan losses in units will mirror 1996-1998 when underwriting was more conservative. Once we work through the loans which are underwater, the loan losses should be as low, or lower than MGIC has ever seen. In addition, average duration of MI should be longer than normal since many of the loans underwritten between 2009 and the present will not refinance in order to get rid of MI. The interest rates are just too low.
My big question is market share. What NIW will Radian have relative to MGIC. I hope and believe we are gaining back market share.
I am still holding the same number of shares as I have for many years.
No real changes in my outlook. I expect the price to increase to about $20 per share. I would expect the price increase before the end of 2016. MGIC is in a great position for the future. (1) Increasing market share. (2) Low Risk to Capital Ratio (3) A skilled and honest management team. My $20 per share assumes about a 13 p/e Multiple, 21% market share and NIW of $45 billion per year once the market normalizes. There is additional upside potential if congress requires additional MI coverage for loans. I do not really care if today's price is $7 or $9 per share. MGIC will be worth $20 per share for those who are patient enough to hold it a few more years.
By my calculation, MGIC's market share increased relative to Radian.'s market share.
If MGIC is gaining market share, this bodes well for their long term revenues and net profits.
About on year ago, MGIC's market share dropped to about 17% from a peak of about 26%. I believe they are now at about 19% market share. This is promising for MGIC shareholders.
The market typically leads earnings. My five year forecast for earnings is $1.75-$2.00 per share.
Based on a 13 p/e ratio, this will result in a $25 per share price.
I project most of this gain in price will happen in the next 12 months. Could we hit $20 per share in the next 12 months?
The Miracle Survival and turn around of MGIC (and other MI's) is in the final two years. I project, 2016 will reflect the beginning of a long period of stable earnings and NIW growth. During the next two years, we will see a return to consistent quarterly profitability (no quarter losses). My projections are $1.5 per share earnings in 2016 and $20 per share (13 x PE).
To get there: (1) NIW will grow to $45 billion per year. This is a 50% growth. (Growth due to market share gains from FHA-23%. Growth from improving housing sales-12%. Growth from market share taken from other MIs 12% (1.12 x 1.12 x 1.23 equals 154%)).
(2) Investment income will increase so that it is sufficient to offset operational expenses and interest expenses.
(3) Loan losses will decline to 20-30% of premiums earned
(4) Reinsurance will be eliminated as the tax benefit of net operation losses is added to the balance sheet eliminating the need for reinsurance.
After 2015, the growth in NIW will be greatly affected by the government's legislation. I suspect, I will be satisfied to see $20 per share when it is realized. In the meantime, I patiently watch and wait.
Based on market trends and historical performance it seems like MGIC is on a clear path to $1.5 per share of earnings and a price of $20 per share. It is just a matter of waiting and watching as the company and industry continue to heal. I am assuming the value will be realized by the end of 2015.
If you look at normal historical operations in the 1990's, net income after tax was about 50% of earned premiums.
I expect that we will be looking at a normal income statement in a few years. Until then, we benefit from no income taxes and hopefully a recapturing of excess loss reserves which should offset lower than normal investment income and higher than normal new delinquent loans.
Perhaps we will see net income of 50% of earned premiums as early as 2014 if loan losses are lower than expected.
MGIC's NIW in December (2013) was $2.1 billion. It was $2.2 billion in December of 2012. December NIW is down by about 4% compared to last December due to significantly fewer refinances.
Radian NIW in December (2103) was $2.85 billion. It was $3.9 Billion in December 2012. December 2013 NIW is down 27%. LIke MGIC, the NIW is down due to fewer refinances. However, one of three other factors is occurring: Radian is losing Market share , MGIC is gaining market share or both.
Prior to recently reducing its Single Premium rates, MGIC had 22% market share on Monthly NIW and significantly less market share its Single Premium NIW.
My forecast is MGIC's single premium market share will increase to 22% bringing its overall market share to 22% from 17%. This will represent a 29% increase in NIW (compared the NIW it would have had with out making itself competitive in single premium policies).
NIW $2.4 billion. - We should gain market share from Radian due to MGIC's more competitive Single Premium rates.(I believe MGIC now has the same rates as Radian for single premium policies).
Cures 7800 and new notices 7800..December is normally one of the worst months. Nevertheless, we have an improving economy.
The report is generally released on the sixth business day of each month. I believe that it will be released Jan 9th due to the New Year's Holiday.
I do not know the details of the accounting of the actual number of delinquent loans. from . However, they are already built into the loan loss reserves and should not have any affect on the net income for the fourth quarter or 2014.
I have held my shares for a long time. No loss of faith. Some times I patiently post and other times, I am just patiently waiting. 2016 is the year. Between now and then our patience will be rewarded slowly but surely.
If all of these factors are combined, the net profit should sky rocket:
NIW increases by 232% to $74 billion.
Loan losses are 20%.
Investment income covers underwriting expenses and interest expenses.
I am assuming average premiums of .56
Assuming average policy life of 4.5 years.
Assuming 30% income taxes (Once the net operating losses are used up).
NIW of $74 billion x average life of 4.5 years and average earned premiums of .56 equals annual premiums earned of $1.863 Billion.
Loan losses of 20% and taxes of 30% would reduce income by about half to $931,500,000 (divided by $336 million shares) or $2.77 earnings per share.
The big ship MGIC has turned the corner and is moving towards a very bright and profitable future.
As home values increase and the delinquent loan inventory clears out loan losses will normalize. After the last few years, who knows what is normal, but 20% of annual premiums is my guess. The insurance written since 2009 has a lower loss rate than 20%, but MGIC and other MI companies will write higher risk policies as they recover market share from the FHA.
MGIC has had losses since 2007. The net operating loss carry forward should be $5 billion plus. This will allow MGIC to generate profits for many years with out paying income taxes. Income taxes are normally 30% plus of income.
Short and long term interest rates are lower than normal due to QE 3. Once the economy heals, interest rates will increase. If overall interest income increases to about 4.5% and if the current investment portfolio does not change, then the investment income should be sufficient to pay for underwriting fees and interest expense.
I project this will occur by 2016.
MGIC's NIW should more than double in the next few years?
1) MGIC will have higher market share due to competitive single premium rates.Overall market share is 17% currently. Monthly premium market share is 22%. With competitive single premium rates, single premium market share should increase to the same share as monthly market share. Consequently, overall market share should increase to 22%. This will increase NIW by 29% and it should occur in 2014.
2) MI market share will increase relative to FHA from 50/50 to 75/25 as FHA's loan limits decline and rates increase. This represents an increase in MI market share of 50%. This forecast was made by both MGIC and Radian on the latest webcast (Goldman Sach's Investment Seminar). I would estimate this to occur by 2016.
3) Purchase money mortgages will increase due to household formation and improved economy. This is a generally held view by almost all housing economists and it was referenced by both MGIC and Radian in the Goldman Sach's Investment Seminar. I conservatively project a growth in MI volume of all types (VA, FHA and PMI) by 20% by 2016.
1.29 x 1.50 x 1.20 equals 2.32. or a growth in NIW from current levels of about $32 billion per year to $74 billion per year.