From Standard & Poor's Equity ResearchOPPENHEIMER DOWNGRADES WELLS FARGO TO UNDERPERFORM FROM PERFORM
Oppenheimer analyst Meredith Whitney believes Wells Fargo (WFC) is under-reserved by at least $4.5 billion, and will need to take a reserve "true-up" in 2008 and potentially more in 2009.
She notes WFC has been a long-time favorite holding of investors due to its consistency, continuity of results; thus, she believes there is significant room for multiple contraction in the event of anything unexpected, and in this case an unexpected reserve build.
Whitney cuts $2.15 2008 EPS estimate to $1.20, vs. consensus of $2.33; she also cuts $2.15 forecast for 2009 to $2.00, vs. consensus of $2.65. Given the wide difference between her estimates and consensus, she concludes that any reserve "true-up" would come as surprise to both analysts and investors.
BEAR STEARNS RAISES MGIC INVESTMENT TO OUTPERFORM FROM PEER PERFORM
Bear Stearns analyst David Hochstim says as a result of MGIC Investment's (MTG) recent capital raise, release of additional info with first quarter results and his updated analysis, he thinks MTG's current share price significantly understates value of the company. Even with very high levels of defaults and paid claims over the next two years, he expects book value at end of 2010 to be higher than current stock price suggests in most scenarios.
Hochstim thinks that the market has overreacted to possible risks in all but most negative scenarios. He believes MTG and PMI Group (PMI), which he rates outperform, appear to be his best positioned mortgage insurers.
Given MTG's improved ability to weather the difficult operating environment, he raises MTG rating to match his rating on PMI.