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Shares of Radian Group Inc. RDN have rallied 32.9% in the past year, outperforming the industry’s 26.9% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 30% and 30.9%, respectively, in the past year. With a market capitalization of $5.04 billion, the average volume of shares traded in the last three months was 1.03 million. Currently priced at $33.86, the stock is a little below its 52-week high of $37.86.

RDN Outperforms Industry, Sector, S&P in a Year

The rally was largely driven by an improving mortgage insurance portfolio, declining claims, a solid capital position and effective capital deployment.

This multi-line insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 17.65%.

RDN Trading Above 200-Day Moving Average

This Zacks Rank #2 (Buy) multi-line insurer is trading above its 200-day simple moving average (SMA) of $32.45, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

RDN’s Return on Capital

Return on invested capital in the trailing 12 months was 7.8%, better than the industry average of 2.5%, reflecting RDN’s efficiency in utilizing funds to generate income.

Factors Acting in Favor of RDN

The insurer has intensified its focus on the core business and services with higher growth potential, ensuring a predictable and recurring fee-based revenue stream.

New business, combined with increasing annual persistency, should drive continued growth of the insurance-in-force portfolio. Radian’s mortgage insurance portfolio creates a strong foundation for future earnings.

Radian Group has been witnessing a declining pattern of claim filings. Thus, we expect paid claims to decrease further. A decline in loss and claims will strengthen the balance sheet and hence improve its financial profile.

Radian Group expects that the private mortgage insurance market will be approximately $300 billion in 2024, consistent with the prior year. It expects a healthy purchase market in 2024, driven by ongoing homebuyer demand and an expected decline in interest rates, which is a positive for mortgage insurers. The company believes that the resulting pent-up demand provides strong support for future purchase volume, which drives the growth in large and valuable insurance in-force portfolio.

The multi-line insurer has been strengthening its capital position with capital contribution, reinsurance transactions and cash position. This, in turn, aids the insurer to engage in wealth distribution.

The 9% increase in quarterly dividend in the first quarter of 2024 marks the fifth consecutive year in which RDN has increased the quarterly dividend, with a total increase of 96% over the past four years. Its current dividend yield of 2.8% betters the industry average of 2.2%, making it an attractive pick for yield-seeking investors.

RDN Shares are Undervalued

Radian Group shares are trading at a price-to-book multiple of 1.08, lower than the industry average of 2.37.

Key Picks

Investors interested in the multi-line insurance industry may look at some better-ranked players like EverQuote, Inc. EVER, CNO Financial Group, Inc. CNO and Horace Mann Educators Corporation HMN, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for EverQuote’s 2024 and 2025 earnings implies year-over-year growth of 144.8% and 16.1%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 149.58%. In the past year, shares of EVER have skyrocketed 124.8%.

The Zacks Consensus Estimate for CNO Financial’s 2024 and 2025 earnings implies year-over-year growth of 20.7% and 0.6%. It beat earnings estimates in three of the past four quarters while missing in one, with an average surprise of 24.51%. In the past year, shares of CNO have gained 51.4%.

The Zacks Consensus Estimate for Horace Mann’s 2024 and 2025 earnings implies year-over-year growth of 69.4% and 43.3%, respectively. It beat earnings estimates in two of the past four quarters, while matched in one and missed in one, with an average surprise of 4.57%. In the past year, shares of HMN have gained 24.6%.

Zacks Investment Research

Shares of Heritage Insurance Holdings, Inc. HRTG have rallied 81.4% year to date, outperforming the industry’s increase of 30.7%, the Finance sector's rise of 22.5% and the Zacks S&P 500 composite’s gain of 26.3% in the same time frame.

This super-regional U.S. property and casualty insurance holding company beat estimates in three of the last four quarters and missed in one. Prudent underwriting execution and rate adequacy initiatives pursued over the last three years are expected to drive its earnings ahead.

Heritage Insurance Outperforms Industry, Sector & S&P YTD

HRTG shares are trading well above the 50-day moving average, indicating a bullish trend.

Mixed Analyst Sentiment for HRTG

The consensus estimate for 2024 and 2025 earnings has moved 14.9% and 4.4% south, respectively, in the past seven days.

The Zacks Consensus Estimate for 2024 implies a 42.9% year-over-year decrease, while the same for 2025 suggests a 118% increase.

It has a Growth Score of A.

HRTG’s Growth Strategy

HRTG’s growth strategy focuses on rate adequacy, selective profit-oriented underwriting criteria and restricting new business in over-concentrated markets or products to drive profitability. The company has stopped writing new personal lines policies in Florida and the Northeast, given the waning profitability of the book of business, coupled with tightening reinsurance markets in December 2022.

HRTG focuses on selective underwriting. There has been a decline in policy count, though average premiums per policy increased. However, HRTG expects the headwind from declining policies to begin to moderate over the next few quarters.

The excess and supply (E&S) business is another growth lever for Heritage. HRTG stated that it will consider and evaluate growth opportunities in a greater number of states.

Heritage Insurance is exposed to hurricanes and other severe weather events in the coastal area. Its reinsurance program shields the balance sheet from erosion. The insurer expects a substantial reduction in the ceded premium ratio, given a combination of improvements in the reinsurance program from a cost and structure standpoint and growing gross premiums earned.

Heritage Insurance’s strategy to divert capital toward technology and to the segments that have the potential to yield more profits seems prudent.

HRTG’s Favorable Return on Capital

Return on equity in the trailing 12 months was 29.2%, higher than the industry average of 7.5%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Its return on invested capital (ROIC) has been increasing for quite some time. This reflects RGA’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 19.7%, higher than the industry average of 5.8%.

Average Target Price for HRTG Suggests a Solid Upside

Based on short-term price targets offered by two analysts, the Zacks average price target is at $16.00 per share. The average suggests a potential 35.3% upside from Tuesday’s closing price.

HRTG Shares Are Affordable

The stock is undervalued compared to its industry. It is currently trading at a price-to-book multiple of 1.42, lower than the industry average of 1.50. It also has a Value Score of A. Back-tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank are the most attractive and their returns are better.

Shares of other insurers like NMI Holdings NMIH, MGIC Investment Corporation MTG and Radian Group RDN are also trading at a multiple lower than the industry average.

Conclusion

A growing commercial residential business, improving E&S business, better pricing, increasing top line, expanding margins and solid earnings bode well for HRTG’s growth. It also carries a VGM Score of A.

However, given muted analyst sentiment it is better to stay cautious on this Zacks Rank #3 (Hold) stock. Those who own it can retain it in their portfolio. New investors should wait for some time before taking a position in the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Radian Group Inc. RDN reported third-quarter 2024 adjusted operating income of $1.03 per share, which beat the Zacks Consensus Estimate by 17%. However, the bottom line decreased 0.9% year over year.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Operating revenues increased 2.6% year over year to $319 million due to higher net investment income. The metric missed the Zacks Consensus Estimate by 0.3%.

The results reflected solid performance in the All Other segment, higher primary mortgage insurance in force and improved investment income, partially offset by higher expenses and poor performance in the Mortgage segment.

Radian Group Inc. Price, Consensus and EPS Surprise

Radian Group Inc. price-consensus-eps-surprise-chart | Radian Group Inc. Quote

Quarter in Details

Net premiums earned were $235 million, down 0.8% year over year. Net investment income increased 15.6% year over year to $78.3 million.

MI New Insurance Written decreased 3% year over year to $13.5 billion.

Primary mortgage insurance in force increased 1.9% year over year to $274.7 billion.

Persistency — the percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 84% as of Sept. 30, 2024, which remained unchanged year over year.

Primary delinquent loans were 22,350 as of Sept. 30, 2024, up 9.5% year over year.

Total expenses increased 24% year over year to $138.4 million. The expense ratio was 23.7, down 30 bps from the year-ago quarter.

Segmental Update

The Mortgage segment reported a year-over-year decrease of 0.2% in total revenues to $287.6 million. Net premiums earned by the segment were $235.1 million, down 0.6% year over year. Claims paid were $3 million, which decreased 40% year over year. The loss ratio was positive 2.7 against negative 3.5 in the year-ago quarter.

The All Other segment reported a year-over-year increase of 22.5% in total revenues to $39.6 million. Net premiums earned by the segment were $3.9 million, up 15.2% year over year. Net investment income grew 58% year over year to $28.1 million. Adjusted pretax operating loss was $4.8 million, narrower than the year-ago loss of $8.7 million.

Financial Update

As of Sept. 30, 2024, Radian Group reported a solid cash balance of $28 million, reflecting an increase of 47.6% from the 2023-end level. The debt-to-capital ratio improved 590 bps to 18.5 from the 2023-end level. Book value per share, a measure of net worth, climbed 17.5% year over year to $31.37 as of Sept. 30, 2024.

In the third quarter, adjusted net operating return on equity was 13.7%, which deteriorated 230 bps year over year.

As of Sept. 30, 2024, Radian Guaranty’s Available Assets under PMIERs totaled approximately $6 billion, resulting in PMIERs excess Available Assets of $2.1 billion.

Share Repurchase and Dividend Update

Radian bought back 1.5 million shares worth $49 million, including commissions, in the third quarter. The remaining repurchase capacity was $618 million as of Sept. 30, 2024. The board of directors paid a quarterly dividend of 24.5 cents per share.

Zacks Rank

Radian currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Assurant, Inc. AIZ reported third-quarter 2024 net operating income of $3.00 per share, which beat the Zacks Consensus Estimate by 20%. However, the bottom line declined 30.7% year over year. Total revenues increased 7.6% year over year to nearly $3 billion, driven by higher net earned premiums, fees and other income and net investment income. The top line beat the Zacks Consensus Estimate by 2.6%.

Net earned premiums, fees and other income increased 7% year over year to $2.9 billion, driven by growth across both segments. Our estimate was $2.8 billion. Net investment income was down 10.9% year over year to $129.7 million. Our estimate was $130.7 million. The Zacks Consensus Estimate was pegged at $127 million. Total benefits, loss and expenses increased 2.2% to $2.8 billion, mainly due to higher policyholders benefit. Our estimate was $2.5 billion. Adjusted EBITDA, excluding reportable catastrophes, increased 31.6% to $ 246.9 million. Our estimate was $397.7 million.

EverQuote, Inc. EVER reported third-quarter 2024 operating net income per share of 6 cents, which beat the Zacks Consensus Estimate by 63.2%. Moreover, the bottom line rebounded from the year-ago quarter’s loss of 40 cents per share. Revenues in the Automotive insurance vertical increased 202% year over year to $130 million. The Zacks Consensus Estimate was pegged at $126 million. Our estimate was $125.2 million.

Revenues in the Home and Renters insurance vertical totaled $30 million, which increased 14.1% year over year. The Zacks Consensus Estimate and our estimate was pegged at $13.9 million. Revenues in the Other insurance vertical totaled $0.4 million, which plunged 63.3% year over year. The Zacks Consensus Estimate and our estimate was pegged at $0.6 million. Total revenues of $144.5 million beat the Zacks Consensus Estimate by 2.9%. The top line surged 162.7% year over year.

Prudential Financial, Inc. PRU reported third-quarter 2024 adjusted operating income of $3.48 per share, which beat the Zacks Consensus Estimate by 0.2%. However, the bottom line decreased 3.8% year over year.

Total revenues of $19.5 billion surged 94% year over year and beat the Zacks Consensus Estimate by 33.7%. The increase in revenues was due to higher premiums, policy charges and fee income and net investment income.

Zacks Investment Research

Radian (RDN) came out with quarterly earnings of $1.03 per share, beating the Zacks Consensus Estimate of $0.88 per share. This compares to earnings of $1.04 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 17.05%. A quarter ago, it was expected that this mortgage insurer would post earnings of $0.87 per share when it actually produced earnings of $0.99, delivering a surprise of 13.79%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Radian, which belongs to the Zacks Insurance - Multi line industry, posted revenues of $319.05 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 0.39%. This compares to year-ago revenues of $311.2 million. The company has topped consensus revenue estimates just once over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Radian shares have added about 13.4% since the beginning of the year versus the S&P 500's gain of 21.2%.

What's Next for Radian?

While Radian has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Radian: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.91 on $322.2 million in revenues for the coming quarter and $3.75 on $1.26 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Insurance - Multi line is currently in the top 31% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

James River Group (JRVR), another stock in the same industry, has yet to report results for the quarter ended September 2024. The results are expected to be released on November 11.

This insurance holding company is expected to post quarterly earnings of $0.66 per share in its upcoming report, which represents a year-over-year change of +37.5%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

James River Group's revenues are expected to be $185 million, down 20.8% from the year-ago quarter.

Zacks Investment Research