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NEW YORK (
Assured Guaranty(AGO - Get Report) shares appear set for a "flurry of trading" as key credit ratings and legal decisions affecting the company look to be imminent, according to one analyst who is bullish on the company's stock.
"We believe both these events could cause the stock to move by 5%-10%, or more, in either direction, depending on the outcomes," wrote MKM Partners analyst Harry Fong in a research note published Monday. In keeping with his "Buy" rating, Fong is betting on a positive outcome from the two events.
One of Fong's expected catalysts is a decision from Moody's Investors Service, which has yet to follow up after it put Assured Guaranty on review for a possible downgrade March 20. Moody's has delayed its decision on two separate occasions, leading Fong to speculate that a positive surprise may be in the cards.
"Given the lengthy delays, we wonder if there have been significant behind-the-scenes negotiations designed to allow Assured to maintain a rating in the Aa category," Fong wrote in a report published Monday. Assured Guaranty currently has a Aa3 rating from Moody's, and Fong notes he had initially expected Moody's to lower it at least one notch, which would have brought it to single-A status.
Fong also expects a favorable ruling for Assured Guaranty from Federal Judge Jed Rakoff in a pending lawsuit against Flagstar Bancorp over residential mortgage-backed securities that Flagstar sold and Assured agreed to insure based on what Assured argues was misleading information provided by Flagstar.
" The important thing to [Rakoff] and to Assured Guaranty was whether the insurer took on more risk than it was led to believe," Fong writes, arguing the insurer was indeed misled.
Written by Dan Freed in New York.