- MGIC Investment (MTG +1.3%), First Data (FDC +1.5%), and Ambac (AMBC +0.5%) all gain in morning trading after BTIG analyst Mark Palmer finds the three financial stocks particularly attractive at 2018's midpoint.
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Ambac's agreement with holders of a majority of its auction market preferred shares--AMPS-- bodes well for the company's shares, as does a recent ruling on its representation and warranty litigation against Bank of America.
- Potential catalysts for AMBC:
Emerging clarity on the treatment of COFINA senior sales tax bonds in Puerto Rico's debt restructuring--which represents about 40% of AMBC's net insured exposure to the island's debt;
Settling the BAC R&w litigation could provide AMBC with the cash it could use to deleverage. A settlement could come sooner, rather than later, Palmer writes.
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For First Data, Palmer sees free cash flow allowing
FDC to reduce net leverage ratio to 5.0x at YE2018 from 5.8x at March 31.
- FDC shares, which trade at 10.7x consensus FY19E EV/EBITDA, should benefit from multiple expansion as net leverage decreases, increasing the value of its equity, and it demonstrates ability to sustain revenue growth in the mid-single digits, Palmer writes.
- Concerns about MGIC Investment should wane as changes in leadership in agencies overseeing the U.S. housing market should give investors more confidence that the government will cede more of the mortgage insurance space to the private insurers, he writes.
- And Palmer sees premium rates stabilizing. "We have heard nothing to support the notion that the PMIs are looking to implement premium rate cuts beyond those already announced," he writes.