Thursday, April 21, 2011

Radian Group Inc. (NYSE: RDN) Q2 2011 Price Target

Recent price: 5.40$
P/E Ratio: -
3 Months Target Price: 8$

Company Description
According to Reuters, Radian Group Inc. is a credit enhancement company. The Company operates in three business segments: mortgage insurance, financial guaranty and financial services. The mortgage insurance business provides credit protection for mortgage lenders and other financial services companies on residential mortgage assets. The financial guaranty business has provided insurance and reinsurance of municipal bonds, structured finance transactions and other credit-based risks. Its financial services business consists mainly of its minority ownership interest in Sherman Financial Group LLC, a consumer asset and servicing firm specializing in credit card and bankruptcy-plan consumer assets.

Confidence Margins
Strong resistance $9.73 (+80%)
Light resistance $8.20 (+52%)
Light support $5.27 (-2%)
Strong support $4.50 (-17%)

MGIC, a direct competitor of Radian Group, sparked the slide by reporting a wider first-quarter loss than expected. MGIC's troubles spell bad news for the entire mortgage insurance industry, because the terrible results stem from a sudden rise in claim payouts.Nearly 14% of MGIC's insured mortgage loans are currently delinquent. This is currently a worst case scenario that will reverse as the economic situation continues to improve.

Entry strategy
For the cautious investor:
Buy the stock for 6$ or less.

For the risk-taking trader:
The August 2011 6$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 60$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 8$, or keep it until 9$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 8$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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