- MGIC Investment (NYSE:MTG) just closed out a big week after its Q2 earnings impressed, and more gains are in store for it, along with peers like Radian Group (NYSE:RDN), NMI Holdings (NASDAQ:NMIH), and Essent Group (NYSE:ESNT), writes Leslie Norton.
- Stringent post-crisis underwriting standards mean new business is nearly pristine: The default rate on private mortgage insurance written since 2010 is only about 50 basis points vs. 20% in 2007.
- So what's holding the stocks back? Private mortgage insurers are in competition with an entity that doesn't care about profits, and the FHA last year cut the premiums on mortgages it insures. Upstart NMI Holdings slashed prices to gain market share, and Fannie Mae and Freddie Mac issued new capital requirements for insurers.
- But pricing has stabilized, if you ask MGIC CEO Patrick Sinks, as well as bullish Oppenheimer fund manager Michael Levine.
- Industry consolidation could be at hand as well. In addition to the four above, AIG's United Guaranty is in the business with about 20% of the market, Genworth Financial (NYSE:GNW) has 16%, and Arch Capital's (NASDAQ:ACGL) MI operation has 6% (for comparison, MGIC and Radian each have about 18% of the market). Old hands will remember MGIC and Radian considered a merger prior to the financial crisis.
- Barclays' Mark DeVries and Zelman Associates' Ivy Zelman figure MGIC has more than 50% upside from the current price, and Zelamn thinks Radian could be a double. Essent, on the other hand, at 9.4x earnings and 1.4x book, looks fully valued. NMI, says Zelman, could be worth $8 vs. the current $6.