We retain MGIC Investment Corp. ( MTG) at Neutral, following second quarter earnings results. Though the company reported operating profit in the quarter and did significantly well compared to the Zacks Consensus Estimate, however, headwinds such as a low interest rates, lack of a robust economic recovery and low premium origination keeps us on the sidelines.
Why a Reiteration?
Counting on the positives, MGIC reported its first quarterly profit since the second quarter of 2010 and the lowest incurred loss ratio since the second quarter of 2007. Results were aided by lower claim rate on early-stage delinquencies, combined with a decreasing level of new notices.
An improving housing market, along with the outstanding credit quality of the company’s new business and its industry's growing share of business from the Federal Housing Authority (:FHA), offers an environment for gradual growth at MGIC.
On the tepid side MGIC’s net investment income has been under pressure.
Though the quality of the new business written by the company remains outstanding and the industry continues to grow its share of new business, the absence of a meaningful economic recovery has compelled the overall purchase origination market to be depressed. This is limiting the company’s new business writings and is resulting in restricted premiums written.
On Jul 23, MGIC reported second quarter 2013 operating profit of 4 cents per share, miles ahead of the Zacks Consensus Estimate of a loss of 16 cents per share. Results also rebounded from an operating loss of $1.36 per share in the year-ago quarter.
MGIC witnessed rising earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for 2013 narrowed to a loss of 46 cents per share from a loss of 72 cents per share as all the 5 estimates improved. For 2014 EPS estimates improved by 41% to 38 cents as 3 of 5 estimates were raised over the same time frame.
MGIC carries a Zacks Rank #2 (Buy).