PMI Group Downside Remains
PMI Group's (PMI) 1Q08 net operating loss of $3.37 per diluted share was substantially worse than the estimates. The results suffered from increased losses in the U.S. Mortgage Insurance Operations and the impairment of PMI's investment in FGIC, which more than offset the higher net income from International Operations.
PMI wrote-off the carrying value of its investment in FGIC. The company's combined ratio worsened significantly while the claim rates and average claim sizes increased considerably. We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies.
Based on the results, we have further reduced our estimates for FY08 and FY09. Our Sell rating on the shares remains unchanged. Our six-month target price of $5.25 per share incorporates a multiple of 0.20x our projected book value of $26.50 per share for September 30, 2008.
Additionally, the quantitative Zacks Rank is currently 4 (down from 3 relative to March 28, 2008), indicating slight downward pressure on the shares over the near term. Short interest is currently 7.4 days versus 3.8 days previously.
Attractive Price for Allianz
We are maintaining our Buy recommendation after Allianz's (AZ) first quarter results. Despite the asset write-downs at Dresdner's, Allianz's property and casualty insurance business is doing well with a 17 percent rise in operating profit.
At its current price, valuation is undemanding as the stock trades at a significant discount to its peers. Our target price is $22.00.
Allianz reported first quarter results which saw first-quarter profits fell 65 percent as it wrote down $1.3 billion tied to the U.S. subprime crisis. Allianz said the write-downs cover asset-backed securities, which combines various slices of mortgage-backed securities. Net profit for the quarter came in at 1.1 billion ($1.69 billion) compared with 3.2 billion ($4.9 billion) in the same quarter a year ago.
The company also said profit figures reflect a decision not to realize gains from capital investments because of jittery stock markets, whereas last year the company booked 2 billion ($3.1 billion) in such gains. Total revenues were down 6 percent to 28 billion ($43.1 billion) compared with 29 billion ($44.6 billion) a year ago.
The CFO said that while 2008 will remain a challenging year, the longer this environment persists, the harder it will be to achieve Allianz's medium-term outlook. But management remain optimistic, as the fundamentals are in very good shape.
Sell Supertex Down to $20
Supertex (SUPX) recently reported revenues of $19.6 million in the fourth quarter of fiscal 2008, down nearly 3% quarter-over-quarter and down 14% year-over-year, but roughly in line with our estimate of $20 million.
