MBIA: A Buyback Bet

06/15/2015 7:00 am EST


David Fried

Editor, The Buyback Letter

Our buyback recommendations are up 162% since inception in 2000 vs. a gain of 46% in the S&P 500 over the same time frame; here's a look at the latest addition to our model portfolio, says David Fried, editor of The Buyback Letter.

MBIA Inc. (MBI), headquartered in Purchase, NY, is a bond insurer which insures municipal debt, providing credit protection and markets access.

MBIA, or the Municipal Bond Insurance Association, was formed in 1973 by four major insurance companies: Aetna Casualty and Surety, St. Paul, Aetna Insurance (now part of CIGNA), and US Fire, a Crum & Forster Company.

A year later it became the first municipal bond guarantor to receive Standard & Poor's highest credit rating, AAA, and that year insured 12 issues totaling $82 million of par value.

By 1980 it reached $5 billion in par amount of municipal bonds insured and went public in 1987.

In 2001 MBIA topped $1 billion in adjusted direct premium, and in 2004, pre-tax operating income in the insurance business topped $1 billion for the first time in company history.

Q1 profit was $69 million on revenue of $219 million (adjusted EPS of 18 cents). For the prior year, the company reported profit of $569 million or $2.76 per share. Revenue was reported as $1.27 billion.

MBIA's largest shareholder recently announced plans to sell 27 million shares in a public offering and MBIA said it would buy 8 million of the shares, which one analyst praised as "a very clever use of its excess capital."

The company repurchased 3.3 million of its common shares during 2014. MBI reduced shares outstanding by 5.25% in the past 12 months. We are adding the stock to our model portfolio.

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