Will MBIA Earnings Finally Get Back to Normal?

MBIA (NYSE: MBI  ) will release its quarterly report on Thursday, and investors have been rewarded for their patience with some big share-price gains in recent months. But looking forward, the big question facing shareholders is whether MBIA earnings will ever return to their former glory, and if so, whether they'll grow fast enough to give investors the confidence they need to invest in the stock.

With its exposure to the financial insurance market, MBIA saw its business stretched to the limit under the stress of the financial crisis. As conditions have improved, MBIA's situation has gotten a lot more attractive, and even though the stock is still quite cheap compared to its pre-crisis levels, investors think the company could keep growing. Let's take an early look at what's been happening with MBIA over the past quarter and what we're likely to see in its quarterly report.

Stats on MBIA

Analyst EPS Estimate

$0.16

Change From Year-Ago EPS

(95%)

Revenue Estimate

$100.25 million

Change From Year-Ago Revenue

(41%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can MBIA earnings keep surprising investors?
Analysts have gotten a lot more optimistic about MBIA earnings prospects in recent months, boosting their June-quarter estimates by just a penny per share, but almost doubling their full-year 2013 projections. The stock has done far better even than those earnings would suggest, with a gain of more than 50% since early May.

Nearly all of MBIA's boost came in early May, when the company entered into a settlement agreement with Bank of America (NYSE: BAC  ) . Under the deal, B of A agreed to pay MBIA $1.6 billion in cash as well as returning MBIA notes that B of A bought in a late-2012 tender offer. In return, MBIA issued B of A almost 10 million warrants to buy MBIA shares at an exercise price of $9.59, which, after the more-than-50% jump in MBIA shares, are currently worth about $40 million to B of A.

One question for MBIA shareholders is whether further proceeds from legal actions might be coming. Assured Guaranty (NYSE: AGO  ) settled a similar case involving mortgage-backed securities with UBS during May, while AIG (NYSE: AIG  ) and B of A are still haggling over a proposed $8.5 billion settlement that AIG now believes was too low.

Yet of even more concern to MBIA has to be the bankruptcy of the city of Detroit, which has reawakened long-dormant fears about the health of the municipal bond market. MBIA's National Public Finance Guarantee subsidiary reported about $100 million of exposure to Detroit back in March, and although a court's decision upholding MBIA's split of its muni-bond and mortgage-insurance units into separate companies could help MBIA's mortgage-insurance unit continue to reap the rewards of rising home prices, further trouble in the muni-bond market could hamper overall results for the parent company.

In the MBIA earnings report, watch for the company to provide a better sense of its path forward from here. With the mortgage-insurance market improving but municipal bonds presenting new challenges, it'll be tough for MBIA to navigate changing financial conditions and find its way back to its pre-crisis growth trajectory.

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