Why MGIC Investment Shares Dropped Temporarily
Apr 30th 2013 4:00PM
Updated Apr 30th 2013 4:25PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of MGIC Investment , a mortgage insurance underwriter, tumbled as much as 10% following the release of its first-quarter earnings report. Shares have since recovered to trade lower by just 1%.
So what: Make that 11 straight quarterly losses for MGIC Investment. For the quarter, MGIC reported a 29% drop in year-over-year revenue to $269.2 million and an EPS loss of $0.31. Wall Street, on the other hand, was forecasting revenue of $276.5 million and a smaller loss of just $0.16 per share. On the bright side -- and likely the reason for the rebound -- the Home Affordable Refinance Program, known as HARP, added $3 billion of $6.5 billion in new insurance written compared to just $4.2 billion in new insurance written in the year-ago quarter. Delinquent loans dropped almost a full percentage point to 10.91% by March 31, 2013.
Now what: Hang on while I put on my surprised look that MGIC missed estimates and reported another quarterly loss as investment income slumped. If you didn't catch that humungous helping of sarcasm, let me spell this out further. MGIC essentially doubled its share count last quarter in order to raise cash to drop its obscenely high risk-to-capital ratio. Furthermore, its management has commented previously that this ratio is only expected to get worse before it gets better. This means continuing losses despite a slowly improving loan environment. As I noted in March, buying into MGIC isn't investing; it's pure speculation!
Craving more input? Start by adding MGIC Investment to your free and personalized Watchlist so you can keep up on the latest news with the company.
With so much of the financial industry getting bad press these days, it may be a greedy when others are fearful moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In the Motley Fool's free report, "The Stocks Only the Smartest Investors Are Buying," you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.
The article Why MGIC Investment Shares Dropped Temporarily originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.