KBW Previews MI, Title Earnings

Prior to the mortgage insurance industry reporting its first quarter earnings, Keefe Bruyette & Woods has increased its price target on the four publicly traded companies' common stock, although it did not increase its earnings outlook. According to analyst Nathaniel Otis, "In our opinion, within the last several weeks, the Obama Administration has significantly ratcheted up efforts to prevent lenders from foreclosing on at-risk borrowers. In addition, delinquency trends thus far in 2010 indicate a better-than-expected seasonal improvement for first-quarter 2010. Although any positive impact from (the) Home Affordable Modification Program may be pushed out another quarter or two, we believe the result could be a more sustained positive stretch of quarterly reporting." The risks include changes to HAMP and to the Federal Housing Administration programs aren't successful. Otis said KBW is remaining neutral for the companies in the space, preferring to revisit its outlook after the earnings reports. KBW's price target on MGIC went from $7 to $12, for Old Republic from $11 to $14, for PMI from $3 to $6 and from Radian from $9 to $18. KBW also issued a preview on title company earnings. Otis said, "While origination expectations appear much more rational this year, reflecting the reality that the real estate market is in a more stable position, the bias is slightly negative given weather issues and compliance with new RESPA rules. This is in stark comparison to last year at this time, when low rates and increased refi volumes fostered optimism. With this in mind, we are reducing our industry estimates for (the first quarter) to factor in these trends." Fidelity National Financial's earnings per share estimate for the first quarter was cut from $0.16 to $0.11; for First American it was cut from $0.23 to $0.20; for Stewart it was cut from a loss of $0.13 to a loss of $0.45; and for Investors Title Co., it was cut from $0.34 to $0.21.