Assured Guaranty lower on rising loss provision

NEW YORK - Analysts widely agree that Assured Guaranty Ltd. is still among the strongest bond insurers, but after it reported weaker-than-expected first-quarter earnings, they are cutting their earnings expectations.

Shares of Assured Guaranty fell 59 cents, or 2.3 percent, to $24.80 Friday.

On Thursday after the market closed, Assured Guaranty reported a loss of $169.2 million, or $2.11 per share. Operating income fell to $6.2 million, or 8 cents per share, well below analysts' average estimate of 65 cents per share, according to Thomson Financial.

"Although we see decent upside to our target price, uncertainty remains on the potential for large losses, future business prospects, additional capital requirements, and how sentiment on the overall credit environment may fluctuate," Deutsche Bank analyst Darin Arita wrote in a research note.

Arita set a price target of $31 for the stock, while cutting 2008 earnings estimates to $2.10 per share from $3 per share.

Much of the first-quarter struggles were tied to rising losses for bonds backed by home equity products. In the case of a default on a bond, insurers like Assured Guaranty make principal and interest payments to the investor.

"The miss in the quarter was primarily driven by much higher than expected loss provisions of $55.1 million versus our estimate of $11.2 million," Banc of America Securities analyst Tamara Kravec wrote in a research note. Kravec had anticipated operating earnings would total 60 cents per share.

Despite its struggles, Assured Guaranty still picked up market share in a sector that has seen major upheaval in recent months.

Assured Guaranty's direct insurance production more than tripled to $255.2 million during the first quarter, well above most analysts' estimates.

Arita estimated production would top out at $220 million.

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