The PMI Group (PMI)
Residential mortgage insurance provider The PMI Group (NYSE: PMI) announced a larger-than-expected earnings loss this week of $1.14 per share. This was a big improvement over the loss of $2.76 a share in the fourth quarter of 2009, but it was well below the Street’s expectations for a loss of 68 cents. The biggest reasons for the shortfall was a 12-cent-per-share charge for the revaluation of corporate securities owned by the company and an income tax expense — as opposed to a credit — as a result of the company repositioning its investment portfolio.
I can live with those one-time items because there was positive news in the key parts of the business, namely that the total number of new mortgage default notices declined to 28,864 from 29,175 in the previous quarter.
What’s most important is that underlying credit trends continue to improve. If the labor market can continue to firm up, then the amount and severity of defaults should keep declining and the stock will see a turnaround. Longer term, a smaller Fannie Mae and Freddie Mac will leave higher-quality business to private insurers like PMI.
Buy PMI under $4.80.