NEW YORK ( TheStreet) -- Ambac Financial (AMBC) surged Friday after BTIG analyst Mark Palmer initiated coverage of the recently-reorganized monoline bond insurer with a "buy" rating and a $31 price target.
Palmer appears to be the only analyst covering Ambac at this point, though his thesis on the insurer looks fairly similar to his long-held views on MBIA (MBI) and Assured Guaranty (AGO), which have proved to be very good calls, even if they took longer than expected are still well short of Palmer's aggressive target prices.
Ambac soared 10% to close at $26.03.
Palmer initiated coverage of MBIA at $8.50 Nov. 30, 2011 with a 12-month target price of $22.50. The thesis was largely based on the idea that MBIA would settle litigation with Bank of America (BAC), granting it a $2-3 billion payout and removing a legal challenge to a critical restructuring for the bond insurer. More than 17 months later, Bank of America settled for $1.6 billion, while getting warrants to buy up to 4.9% of the insurer at a substantial discount. MBIA shares popped as Palmer anticipated, but never made it much past $16. They were up 0.34% to $15.34 late Friday morning.Assured Guaranty, meanwhile, was at $11.25 when Palmer initiated coverage with a $35 target price Dec. 5, 2011. Palmer also counted on the insurer extracting legal settlements from the banks and its "virtually unimpeded opportunity to increase its penetration," of the municipal bond insurance market. While the extended period of low interest rates has made the economics of the muni bond insurance business unattractive, Assured Guaranty proved adept at winning big settlements from the banks. Shares have more than doubled since Palmer's initial recommendation and were trading at $23.94 shortly after noon on Friday. In the case of Ambac, Palmer's recommendation is once again based in large part on the prospect of it winning legal claims over mortgage backed securities sold by the big banks. Ambac, which came out of bankruptcy May 1, has paid out roughly $2.5 billion to banks including Bank of America, JPMorgan Chase (JPM), Credit Suisse (CS), Nomura and First Franklin. Palmer believes legal battles won by MBIA and Assured Guaranty have laid the groundwork for Ambac to extract some relatively easy settlements. Even if it can win just half of what it has paid out, $1.258 billion would exceed its current market cap, he points out.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV