On Tuesday, investment banking firm KBW provided its outlook for 2025, favoring mortgage insurers over title insurers and originators due to the current interest rate environment. Analysts at KBW expect the purchase market recovery to extend beyond 2025, as long-term interest rates remain elevated and the market anticipates only three modest rate cuts from the Federal Reserve in 2025.
This backdrop has led KBW to maintain an Outperform rating on Essent Group Ltd . (NYSE:ESNT), Radian Group Inc . (NYSE:NYSE:RDN), and Arch Capital Group Ltd. (NASDAQ:ACGL), while downgrading MGIC Investment Corp. (NYSE:NYSE:MTG) to Market Perform based on valuation concerns.
Title insurers, while positioned to grow margins and earnings, lack near-term positive catalysts for their shares, according to KBW. Consequently, the firm has downgraded First American Financial Corporation (NYSE:NYSE:FAF) to Market Perform, aligning with its existing ratings for Fidelity National Financial Inc. (NYSE:NYSE:FNF) and Stewart Information Services (NASDAQ:III) Corporation (NYSE:NYSE:STC).
For mortgage originators, KBW has a Market Perform rating on Mr. Cooper Group Inc. (NASDAQ:COOP) and PennyMac Financial (NYSE:PFSI) Services Inc. (NYSE:PFSI) due to valuation. Rocket Companies Inc. (NYSE:RKT) was downgraded to Underperform, reflecting a challenging outlook for mortgage originators with a significant refinance market presence.
Price targets for title insurance companies have been adjusted based on new 2027 earnings per share (EPS) estimates, discounted back one and a half years. FNF's target has been raised slightly to $64 from $63, and STC's to $84 from $79, while FAF's target remains unchanged at $80. Mortgage originator RKT's price target has been lowered significantly to $11.50 from $16, with a similar reduction for UWM Holdings Corporation (NYSE:UWMC) to $7 from $9.
The price targets for COOP and PFSI have seen marginal adjustments, with COOP remaining at $105 and PFSI changing to $111 from $112. The target for ONIT remains steady at $45. In the mortgage insurance (MI) space, price targets have been updated with base tangible book value (TBV) periods rolled forward to the fourth quarter of 2024.
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