Mortgage Insurer Comeback Still Tentative

NEW YORK (TheStreet) --Shares of mortgage insurers have added to recent gains as they report third quarter earnings, though several questions continue regarding the sector, which is still struggling to come back from the 2008 crisis.

Radian Group (RDN) which reported results Thursday, has seen the biggest gains of late, with shares rising more than 20% as of late Friday morning during the short trading week following Hurricane Sandy.

Radian saw three analysts raise their target prices following the mortgage insurer's third quarter earnings release Thursday, which beat consensus expectations.

Radian reported earnings of 11 cents per share, though FBR Capital Markets analyst Steve Stelmach adjusted that result to a 17 cent loss when removing what he considers "one-time" extraordinary items.

Still, Stelmach upped his price target to $6 from $3, noting "a large amount of new insurance written, as well as [Radian's] ability to remain below the 25:1 regulatory risk-to-capital threshold, as previously guided."

Stelmach also included a 2014 estimate for the first time in his Radian coverage. He sees Radian earning $1.14 per share that year. He also upped his 2013 estimate to a loss of just a penny per share, compared to his previous estimate of a 65 cent loss.

New insurance written grew to $10.6 billion, more than twice the amount written in the third quarter of 2011. Claims Radian pays out, meanwhile, fell to $272.4 million--a 17% decline versus the prior year, and management expects to pay out $250 million in claims next quarter, according to Stelmach's report.

Other boosts for Radian came from Susquehanna Financial Group analyst Jack Micenko, who raised his target to $5 from $3.5, and Barclays Capital's Mark Devries, who upped his target to $4 from $3. Stelmach and Micenko kept their recommendations at the equivalent of "hold," while Devries maintained his underweight rating.

The Susquehanna and Barclays reports could not be obtained, but a report from bond research firm Creditsights argues Radian "has adequate liquidity to meet its near-term obligations." The insurer has $330 million in liquidity, with $80 million in debt coming due in February, $250 million in 2015 and $450 million in 2017.

Genworth Financial (GNW) shares also jumped after the company reported third quarter results Tuesday. However, a report from Creditsights mostly praised strength in Genworth's U.S. life insurance business, which expressing concern that capital ratios in the mortgage insurance segment "remain weak."

Genworth shares then dropped nearly 5% early Friday following the announcement of a bond tender offer. BTIG analyst Mark Palmer argued the drop may have been inevitable following the more than 10% rally following third quarter earnings. He also thinks investors may have been disappointed if they were anticipating Genworth would use its cash for a share buyback. Shares were trimming their losses by late morning, but were still lower by 3.5% to $6 shortly before midday.

The mortgage insurance business of Old Republic International (ORI), which reported third quarter results Oct. 25, has been in run-off mode since March. Still, its results would appear to bode well for those companies that have been able to stay in the business. Old Republic saw a decline in claim costs, which the company attributed to "a continuing downtrend in newly reported cases, relatively stable cure rates, and lower paid claim levels," which "more than offset reduced provisions for claim rescissions."

Another mortgage insurer, MGIC Investment Corp (MTG) will report results on Friday, Nov. 9. From Thursday's open through mid-Friday, its shares were up some 14.5%, apparently in sympathy with Radian's consensus-beating numbers.

-- Written by Dan Freed in New York.

Follow @dan_freed

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.