NEW YORK (
MGIC Investment Corp.
, a Milwaukee, Wis.-based mortgage insurer, saw shares jump 12.39% Monday to close at $1.27 on volumes of 9.7 million shares compared to average daily volumes of 5.5 million shares over the past three months.
MGIC shares have rebounded in recent days after losing 64% of their value Aug. 2 following what FBR Capital Markets analyst Steve Stelmach referred to in an Aug. 3 downgrade of the company as an "unexpectedly large" second quarter loss. Stelmach dropped his recommendation to "market perform" from "outperform" in that report. Shares have nearly doubled, however, since hitting a 52-week low of $0.66 on Aug. 3.
Stelmach argued in the note accompanying his downgrade that the negative earnings surprise from MGIC added to questions over "the lack of visibility on a number of persistent regulatory and legal issues facing MGIC." His previous bullish view on the company was based on a notion that MGIC was stronger than other publicly-traded competitors and that the company would slowly work its way to profitability in a relatively short period of time. The second quarter results, however, "call both of those pillars into question," he wrote.
Despite that disappointment, an Aug. 8 report from Credit Suisse noted decreasing defaults from MGIC in July and a $200 million increase in new insurance written , raising the total to $2.4 billion--an almost 85% increase since February. Credit Suisse has a "neutral" rating and a $2 price target.
also saw shares rise Monday--by 3.55% to $3.21. While Radian's volumes were just slightly above average, most stocks traded well below average volumes since trading activity tends to be light in mid-August.
Both MGIC and Radian would benefit from a housing recovery, hopes for which were recently bolstered when
both posted second quarter profits. Indeed, both government sponsored entities have seen increased prices and volumes for their shares since they released their earnings. Freddie Mac shares gained 2.61% Monday to close at above 29 cents, while Fannie Mae shares rose 6.4% to 30 cents. Still, in order for those shares to have any value, the preferred shares, which ceased paying dividends in 2008 and trade for just a fraction of their original value, would have to be fully repaid.
The GSEs profits are likely to prove fleeting, according to a report from Moody's analyst Brian Harris on Monday. Harris notes the profits are due to reserve releases and argues future earnings will not exceed the amount the government sponsored enterprises owe the Treasury in dividends. The Treasury has been backstopping the GSEs since the 2008 crisis.
Financial stocks in general were mostly flat on Monday as the
Financial Select Sector SPDR
rose just .07% to $14.95.
Written by Dan Freed in New York
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