The return to operating profitability at Radian Group should be in 2012 but for rival PMI, it should take longer to return to profitability because it continues to operate with a thinner capital cushion than its competitors, separate reports from FBR Capital Markets analyst Steve Stelmach declare.
Radian did report a net profit of $103 million, but that was driven by fair market gains on its derivatives investments. Take that away from the equation, the company's $1.26 per share operating loss was below FBR and consensus estimates, Stelmach said.
He was encouraged by the progress Radian has implemented over the past year to reduce losses, with operating numbers improving on both a year-over-year and quarter-over-quarter basis. "But at some point, Radian will need to show some sign of break-even results and eventually profitability," Stelmach continued, and that day is more likely to occur in 2012 than in 2011.
He predicts Radian will take operating losses in all four quarters this year, but will be profitable throughout 2012. For PMI, while he revised his full-year outlook for 2012 for the company to be profitable, the only quarters it will report positive earnings for next year are the first and the fourth.
Stelmach thinks that PMI's likely breaking the risk-to-capital ratio barrier of 25:1 could impact the level of new insurance it writes (even with regulatory waivers) as some lenders might rein in the volume of business they direct to the company.
"Given PMI’s thin capital and dependence on some level of regulatory forbearance, a significant deceleration of losses and a return to profitability is arguably more important to PMI than to other competitors in the space," he declared.
