Shares of mortgage insurer Radian Group Inc. (RDN) shot up 15 percent this morning after a report from U.S. Treasury Secretary Tim Geithner called for gradually winding down mortgage buyers Fannie (FNMA.OB) and Freddie (FMCC.OB) and reducing the government’s role in the mortgage markets. The report also called for increasing the mortgage insurance premium charged by the Federal Housing Administration [FHA].
Shares of U.S. private mortgage insurer and market leader MGIC Corp. (MTG) rallied on Friday, gaining over 11% to $10.42. Rivals, PMI Group Inc. (PMI ) and mortgage bond insurer MBIA (MBI), gained as well.
Technically speaking, shares of RDN have been moving largely lower over the past 10 months. While the stock continues to remain at depressed levels, having fallen more than 1.10% year-to-date, there are significant support areas just below the current pps that may yield a bottom. The first level is at $6.75. This is the pivot low from early February 2011 and would act as a double bottom for the stock on the yearly chart. The second level is at $7.25. In addition, at $8.21, the stock would hit the daily 200 moving average which would confirm the company’s upward momentum. This would be another major support. Once that level gets consolidated the equity will then be poised to trend higher and challenge some resistance at the $8.50 level.
From a valuation perspective, RDN does not look expensive. It currently trades at a 1.24x on a price -to- sales basis. The equity has a forward P/E of 9.44 and a P/E to Growth ratio of -1.82. The median Wall Street price target on RDN shares is $10.00 with a high target of $15.00.
At last check, shares or RDN were up $0.93, or 13.14%, to $8.00. Volume has exploded with more than 15 million shares already trading hands compared to a daily average volume of 5.9 million. The day’s trading range for the ticker is $7.48 – HOD $8.20.
Author holds long position