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MGIC Investment Upgraded at RBC Capital on Attractive Valuation

MGIC Investment (MTG) Upgraded at RBC Capital on Attractive Valuation

By Sam Boughedda

MGIC Investment Corporation’s (NYSE:MTG) shares were upgraded to Outperform from Sector Perform by RBC Capital on Thursday.

RBC analyst Mark Dwelle, who also raised the firm’s price target on the stock to $16 from $15, said the upgrade was based on a historical valuation disconnect, reinsurance and risk management improvements, meaningful debt reduction, and best-in-industry NIW total since 2019.

“Our upgrade balances the sentiment headwind of owning ‘mortgage’ stocks in a market fearful of recession and slowing housing market, with the sizable discount to book value where MGIC shares currently trade,” said Dwelle.

RBC sees MGIC as “attractively valued,” and over time, they expect shares to rebound towards book value and perhaps higher.

MGIC shares are down 13% in 2022 but have jumped 7.8% Thursday.

MGIC has cut its debt to cap ratio nearly in half since YE2020 and lowered its average borrowing cost by nearly 50 bps. The biggest action has been the over $200 million of repurchases of 9% convertible debentures (2063 maturity), which helped reduce potentially dilutive shares by 10 million shares,” said Dwelle. “Since YE2019, MGIC has written the most new business in the MI industry. The 2020 and 2021 cohorts are blocks of business we expect to be particularly profitable with high affordability (i.e. low interest rates) and meaningful HPA. MGIC’s top market share during the period should set up for a strong multi-year earnings outlook.”

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