NEW YORK (TheStreet) -- Shares of MGIC Investment Corp. (MTG) are plunging -14.50% to $7.90 in pre-market trading on Friday after the mortgage-insurer said the Federal Housing Finance Agency's newly-proposed standards for the industry would mean its available assets would be "materially less" than the minimum requirements.
MGIC said the FHFA's proposal, which would require insurers backing mortgages owned or guaranteed by Fannie Mae (FNMA) and Freddie Mac (FMCC) to hold liquid assets of at least 5.6% of their risk exposure, is "far in excess" of what's needed to reduce industry risk, according to Marketwatch.
Separately, Goldman Sachs (GS) removed MGIC Investment from the "conviction buy" list due to increased uncertainty from the release of the FHFA's proposed private mortgage insurer eligibility requirements, yet maintained its "Buy" rating on the company.
TheStreet Ratings team rates MGIC INVESTMENT CORP/WI as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate MGIC INVESTMENT CORP/WI (MTG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that revenues have generally been declining."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MGIC INVESTMENT CORP/WI reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, MGIC INVESTMENT CORP/WI continued to lose money by earning -$0.23 versus -$4.59 in the prior year. This year, the market expects an improvement in earnings ($0.51 versus -$0.23).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Thrifts & Mortgage Finance industry. The net income increased by 182.2% when compared to the same quarter one year prior, rising from -$72.93 million to $59.98 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market on the basis of return on equity, MGIC INVESTMENT CORP/WI has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- MTG, with its decline in revenue, underperformed when compared the industry average of 0.0%. Since the same quarter one year prior, revenues fell by 12.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Powered by its strong earnings growth of 148.38% and other important driving factors, this stock has surged by 53.63% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- You can view the full analysis from the report here: MTG Ratings Report