Investors overreacted to the fourth quarter loss posted by MGIC Investor Corp., a report from FBR Capital Markets implies.
Analyst Steve Stelmach not only maintained his outperform rating on the company's stock, but continues to predict MGIC will be profitable in the first two quarters of this year and return to full year profitability in 2012. He did drop his earnings per share forecast from $0.08 to $0.02 for the first quarter and $0.19 to $0.07 for the second.
"With the hype regarding the fourth quarter having now passed, we can approach the stock with a more sober perspective and evaluate the opportunity that it presents," Stelmach said in a report.
While investors felt it was a disappointing fourth quarter at MGIC, he argued much of the problem was related to taxes and that new notices of default were lower during what is typically the weakest quarter of the year for a mortgage insurer, cure rates were flat quarter over quarter and new risk written was up 19%. The latter shows the positive impact the Federal Housing Administration pricing changes are having, not only for MGIC but other private MIs as well.
Stelmach said he remains positive but realistic on the company. Sustained profitability will return, but not until 2012. He has made an initial prediction of $1.75 per share for that year.
