Buy Assured Guaranty Over MBIA, MKM Says
In a report published Tuesday, MKM Partners analyst Harry Fong said that the pressure on financial guarantee stocks, following Puerto Rico Governor Alejandro Garcia Padilla's pronouncement that the Commonwealth could not afford to pay its debt, appears to be "too severe."
Governor Padilla suggested that Puerto Rico's debt was not payable and there was no alternative than to begin looking for concessions from creditors. This was the first indication from Puerto Rico's current administration that seek to reduce its $72 billion debt burden "at the expense of creditors."
Analyst Harry Fong maintained a Buy rating on Assured Guaranty Ltd. (NYSE: AGO), with a price target of $35, saying that the company had "ample claims paying resources to deal with any Puerto Rico fall-out." Fong believes that the company would continue to repurchase shares and "should be able to take advantage of the potential increase in new business opportunities."
Assured Guaranty, along with MBIA Inc. (NYSE: MBI), has $2.5 billion in "Puerto Rico debt service exposure through 2020," MKM Partners said in its report, while adding, "We still see value in the shares though the near-term could be volatile, in our view."
MBIA's shares plunged 23.5 percent and Assured Guaranty's shares were down 13.5 percent, following the news, versus a 2.1 percent decline with the S&P 500.
Fong downgraded the rating on MBIA from Buy to Neutral, while slashing the price target from $20 to $8.
Latest Ratings for AGO
|Feb 2017||Keefe Bruyette & Woods||Downgrades||Outperform||Market Perform|
|Jul 2015||BTIG Research||Upgrades||Neutral||Buy|
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