(Reuters) - Shares of mortgage insurers Radian Inc (RDN.N) and MGIC Investment Corp (MTG.N) surged after Barclays gave its top rating to the stocks, saying the companies have better access to the capital needed to absorb any additions to loss reserves.
Shares of MGIC soared 25 percent to $5.22, while Radian shares were at a near three-year high at $10.53 by early afternoon on the New York Stock Exchange.
"Our biggest reason for remaining cautious on the mortgage insurers until now was that we were concerned that the companies may not be adequately reserved for currently delinquent loans," Barclays analyst Mark DeVries said in a note to clients.
Radian recently said it raised $700 million through a sale of stock and bonds. Rival MGIC also disclosed in its fourth- quarter earnings call that it was exploring the option of raising the capital.
DeVries expects MGIC to raise capital without much trouble, given Radian's successful offering.
DeVries said that less default notices and lower exposures to claims through settlement with counterparties will boost MGIC shares and raised the target price on the stock to $8 from $1.
Radian's recent capital raise will keep its risk-to-capital ratio within the regulatory limit of 25 to 1 and help it write insurance policies without any problem, said DeVries, who raised his target price on the company' stock to $14 from $4.
Shares of rival Genworth Financial Inc (GNW.N) were up 5 percent at $9.59 on the New York Stock Exchange, their highest in 18 months.
Reporting by Avik Das in Bangalore