Can MBIA Revive in 2012?

With 2012 just beginning, now's a good time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at MBIA (NYSE: MBI  ) . As I discussed last month, the company managed to survive an incredibly difficult environment for bond insurers over the past several years. With the housing market potentially having hit bottom and problems in the municipal bond market not coming to pass -- at least not yet -- can MBIA finally post some strong gains in 2012? Below, I'll take a closer look at what people expect from MBIA and its rivals.

Forecasts on MBIA

Median Target Stock Price $20.25
2011 EPS Estimate ($2.55)
2012 EPS Estimate $0.99
Expected Annual Earnings Growth, Next 5 Years 10%
Forward P/E 12.5
CAPS Rating *

Source: Yahoo! Finance.

Will MBIA keep moving fast in 2012?
Analysts have high hopes for MBIA, with target stock prices more than 60% higher than their current levels. Interestingly, though, they see those gains coming from weaker sales -- MBIA revenue estimates for 2012 are more than a quarter lower than what the company's likely to have posted in 2011.

The big question for MBIA's 2012 is what will happen in its main areas of business exposure. Judging from weak expectations for more mortgage-focused insurers MGIC Investment (NYSE: MTG  ) and Radian Group (NYSE: RDN  ) -- both of which are seen posting red ink in 2012 -- the mortgage business looks like it'll be a drag on MBIA. On the other hand, Assured Guaranty (NYSE: AGO  ) similarly sees strength in its municipal bond business, suggesting that the muni crisis that some have predicted may not come to pass. Still, though, muni bond yields are quite a bit higher than those on Treasuries of comparable maturities, which shows that investors still see greater risk in muni bonds.

Another key issue remains potential liability to other financial institutions. The $1.1 billion settlement it paid to Morgan Stanley (NYSE: MS  ) last month marks a step in the right direction, but with other suits outstanding, it'll take a while for MBIA to work its way through the issue.

If the financial system avoids any other shocks -- such as a European sovereign crisis -- then MBIA is in good position to see gains from its somewhat depressed levels. Even with lower levels of activity, a return to consistent profitability will undoubtedly cheer shareholders.

Click here to add MBIA to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On January 10, 2012, at 7:35 PM, rsd57 wrote:

    This is a very misleading article on MBIA's prospects. First of all earnings for this company are misleading at best, since there is a lot of noise from accounting rules affecting their EPS. The main issues for MBIA are the mortgage litigation and the transformation litigation. So far the mortgage litigation is going their way- they have sued originators for breaches of reps and warranties. They just got a big one vs. Countrywide in two preliminary rulings. They have booked if I am not mistaken an asset of 2.8 billion for putbacks, but there now appears to be a good chance that they will exceed this amount on their books- the rumor is they will be able to get about this amount from Bank of America/ Countrywide alone. They paid out about $5 billion in losses so far. Since their market cap is only $2 billion now this is significant. They also have been locked out of the municipal insurance market since the split of the company into a two entities - one National Public Finance engendered lawsuits alleging fraudulent conveyance. Today MBIA announced settlement with BNP so there are only 4 plaintiffs left in this suit. The pressure increases on the remaining plaintiffs to settle and the NYS Div of Finance seems to be helping in these negotiations. If the last 4 litigants settle, MBIA's subsidiary will be in position to be able to write new municipal business and therefore will no longer be in run off. Its ratings will be upgraded. That is why CDS costs on MBIA keep dropping. The caps rating and analyst ratings are not that relevant now. What is critical to the company is the outcomes of their various litigation and rumors and news on those move the stock. There is also a large short on this stock and a large amount of stock is held by the top 10 institutional holders. This makes the stock extremely volatile at times.

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