Tuesday, Friedman, Billings, Ramsey upgraded Delphi Financial Group Inc. (DFG) shares to Outperform from Market Perform and increased its price target to $26 from $19. However, the brokerage lowered its 2009 EPS estimate to $3.13 from $3.20, and its 2010 estimate to $3.31 from $3.45.
Analyst Randy Binner noted that Delphi announced an equity capital raise of about $58.3 million on April 28, which, along with forecasted earnings, puts the company in a better position to absorb estimated credit losses in 2009 and 2010.
The analyst increased his price target to $26 from $19, which is 2010 BV ex-AOCI, net of earnings and an average of his medium and high-end credit loss assumptions.
The analyst's credit analysis previously viewed Delphi as marginally capitalized to absorb estimated credit losses; the capital raise provides more comfort in this regard. The analyst now estimates excess capital of $212 million to absorb forecasted credit losses of $153 million through year-end 2010.
The analyst said that although there will likely be macroeconomic pressure on the group benefits loss ratio and, to a lesser extent, excess workers' compensation margins, earnings should be enough to generally absorb credit losses, allowing Delphi to maintain adequate risk-based capital ratios at Reliance Standard Life and Safety National.
Currently, DFG is down $2.23 or 11.41% and trading at $17.32.
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