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MGIC Investment: Rates Revised, Top Line Likely to Suffer

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On Jun 21, 2016, we issued an updated research report on MGIC Investment Corp. (MTG - Free Report) .

The multi line insurer’s first-quarter 2016 earnings missed the Zacks Consensus Estimate primarily on higher losses.

MGIC Investment anticipates a decline in its business written in 2016, owing to revision of premium rate cards. Such rate reductions are expected to limit the company’s top-line growth in future. The rate revisions by the company are a direct effect of the associated capital charges of Private Mortgage Insurer Eligibility Requirements (PMIER) and the current marketplace dynamics.

Further, a highly competitive mortgage insurance market remains a headwind. Also, the company faces competition from Federal Housing Administration (FHA), which slashed its annual premiums last year to make loans more affordable.

Notably, MGIC Investment was reinstated to the investment grade status by both Moody’s and S&P in first-quarter 2016. The financial strength of the company was rated Ba3 (with a stable outlook) by Moody’s Investors Service and BB+ (with a stable outlook) by Standard & Poor’s Rating Services. However, as a result of the company’s below Aa3/AA- financial strength rating, it has been operating with each Government Sponsored Enterprise (“GSE”) as an eligible insurer under a remediation plan.

MGIC INVSTMT CP Price and Consensus

MGIC INVSTMT CP Price and Consensus | MGIC INVSTMT CP Quote

Nevertheless, MGIC Investment has been witnessing improvement in its capital position, which in turn has enabled it to repurchase some of its convertible debt. As a result, the company’s interest burden will be lowered, facilitating margin expansion.

Moreover, an improving housing market as well as declining delinquency will aid the insurer’s earnings over the coming quarters.

Zacks Rank and Stocks to Consider

Currently, MGIC Investment carries a Zacks Rank #4 (Sell). Some better-ranked stocks are Assurant, Inc. (AIZ - Free Report) , James River Group Holdings, Ltd. (JRVR - Free Report) and Horace Mann Educators Corp. (HMN - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy).

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