Mortgage insurer PMI Group (PMI) shareholders got a nice surprise yesterday when the company announced the price for the sale of its Australian mortgage insurance subsidiary: $920 million. The sale is not a surprise, but the valuation is, and the stock jumped nearly 50%.
Granted, a 50% pop doesn’t mean much when you’re a $4 stock with a 52-week high of $36. And FBR thinks the still-deteriorating credit environment will keep PMI in the tank:
While the sale will moderately reduce book value per share and earnings, it will benefit the company’s liquidity position, and it pushes out the risk of a highly dilutive capital raise in the near term. As a result of the better-than-expected valuation on the sale of Australia MI, we are increasing our price target from $3 to $5 to reflect a valuation more in line with comparable mortgage insurers. To note, we had recently trimmed our price target on PMI citing concern over capital flexibility. This transaction helps to ease that worry, although not completely. We are, however, lowering our EPS estimates to reflect the lost revenue associated with the Australian unit. We are maintaining our Market Perform rating as the positive capital and liquidity implications remain overshadowed by an uncertain credit environment.
FBR maintains MARKET PERFORM on PMI Group (PMI), target raised from $3 to $5.
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