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For the full text of this story please click the following link: http://www.moodys.com/page/viewresearchdoc.aspx...
For the full text of this story please click the following link: http://www.moodys.com/page/viewresearchdoc.aspx...
Shares of Radian Group RDN closed at $35.15 on Tuesday, near its 52-week high of $37.86. Improving mortgage insurance portfolio, declining claims, a well-performing homegenius segment, a solid capital position and effective capital deployment are driving the price higher.
Radian Group continued to benefit from positive credit performance in the mortgage insurance portfolio. With strong persistency rates and the current positive industry pricing environment, RDN expects in-force portfolio premium yield to remain stable.
Shares have gained 23.2% year to date, outperforming the industry’s increase of 16.4%, the Finance sector’s rise of 14.3% and the Zacks S&P 500 composite’s increase of 18.1% in the said time frame.
RDN Outperforms Industry, Sector, S&P 500 YTD
RDN shares are trading well above the 50-day moving average, indicating a bullish trend.
RDN’s Northbound Estimate Revision Instills Confidence
Both the analysts covering the stock raised estimates for the current and next year. The Zacks Consensus Estimate for RDN’s 2024 and 2025 earnings has moved 6.5% and 1.7% north, respectively, in the past 60 days, reflecting analyst optimism.
RDN’s Return on Capital
Return on invested capital in the trailing 12 months was 8.2%, better than the industry average of 2.4%, reflecting RDN’s efficiency in utilizing funds to generate income.
Factors Acting in Favor of Radian
The company 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.
RDN 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.
The insurer has been strengthening its capital position with capital contribution, reinsurance transaction and cash position. This, in turn, aids the insurer to engage in wealth distribution.
RDN Shares Are Undervalued
RDN shares are trading at a price-to-book multiple of 1.18, lower than the industry average of 2.60. Its pricing at a discount to the industry average gives a better entry point to investors.
Shares of other insurers like MGIC Investment Corporation MTG are trading at a multiple lower than the industry average, while that of Arch Capital Group ACGL are trading at a multiple higher than the industry average.
Parting Thoughts
Radian 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 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 2.7% betters the industry average of 2.5%, making it an attractive pick for yield-seeking investors.
Given its attractive valuation, this Zacks Rank #2 (Buy) mortgage insurer is a strong contender for addition to one’s portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
Shares of MGIC Investment Corporation MTG closed at $25.30 on Tuesday, near its 52-week high of $25.93. Solid insurance in force, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment are driving the price higher.
Given the strong purchase market and potential share gains from the Federal Housing Administration, MGIC Investment expects strong premium writing. Increased persistency rate should continue to boost insurance in force.
Shares have gained 31.2% year to date, outperforming the industry’s increase of 15.8%, the Finance sector’s rise of 14.1% and the Zacks S&P 500 composite’s increase of 18.1% in the said time frame.
MTG Outperforms Industry, Sector, S&P 500 YTD
MTG shares are trading well above the 50-day moving average, indicating a bullish trend.
MTG’s Northbound Estimate Revision Instills Confidence
All three analysts covering the stock raised estimates for the current and next year. The Zacks Consensus Estimate for MTG’s 2024 and 2025 earnings has moved 2.2% and 1.5% north, respectively, in the past 30 days, reflecting analyst optimism.
MTG’s Return on Capital
Return on invested capital in the trailing 12 months was 11.4%, better than the industry average of 2.4%, reflecting MTG’s efficiency in utilizing funds to generate income.
Factors Acting in Favor of MGIC Investment
The insurance-in-force portfolio is set to grow, banking on new business and increasing annual persistency. A higher level of new and existing home sales, an increased percentage of homes purchased for cash and an improved level of refinance activity in an improving housing market should help this largest private mortgage insurer in the United States grow.
MTG has been witnessing a declining pattern of claim filings. A decline in loss and claims will strengthen the balance sheet and improve the insurer’s financial profile.
The insurer is improving its capital position with capital contribution, reinsurance transactions and cash position. Both leverage and times interest earned ratios have been improving.
A solid capital position supports MTG in wealth distribution. The company currently has $724 million remaining in its authorization kitty through December 2026. Its share repurchase activity reflects continued strong mortgage credit performance.
MTG’s Optimistic Growth Outlook
The Zacks Consensus Estimate for 2024 earnings is pegged at $2.76 per share, suggesting an increase of 9.1% on 4.7% higher revenues of $1.2 billion. The consensus estimate for 2025 earnings per share is $2.76, flat year over year on 4.6% higher revenues of $1.3 billion. The long-term expected earnings growth rate is 6.8%.
MTG Shares Are Undervalued
MTG shares are trading at a price-to-book multiple of 1.28, lower than the industry average of 2.60. Its pricing, at a discount to the industry average, gives a better entry point to investors.
Shares of other insurers like Radian Group RDN are trading at a multiple lower than the industry average, while that of Arch Capital Group ACGL are trading at a multiple higher than the industry average.
Parting Thoughts
MTG has been seeing improving housing market fundamentals, such as household formations and home sales and the current capital status. Higher premiums, outstanding credit quality and new business will continue to induce growth for MCIG.
The latest 13% increase in its quarterly dividend to 13 cents per share marked four straight years of dividend increases at a compound annual growth rate of 21%. Its current dividend yield is 2.1%.
Given its attractive valuation and upbeat prospects, this Zacks Rank #1 (Strong Buy) mortgage insurer is a strong contender for addition to one’s portfolio.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks Investment Research
It has been about a month since the last earnings report for Radian . Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Radian due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Radian Group Q2 Earnings Top Estimates, Premiums Rise Y/Y
Radian Group Inc. reported second-quarter 2024 adjusted operating income of 99 cents per share, which beat the Zacks Consensus Estimate by 13.8%. Moreover, the bottom line increased 8.8% year over year. Operating revenues increased 12.3% year over year to $325.6 million due to higher net premiums earned, services revenues and net investment income.
The results reflected solid performance across both Mortgage and All Other segments, higher primary mortgage insurance in force, improved investment income and premiums earned, partially offset by higher expenses.
Quarter in Details
Net premiums earned were $237.7 million, up 11.4% year over year. Net investment income increased 16.4% year over year to $73.7 million. MI New Insurance Written decreased 18% year over year to $13.9 billion. Primary mortgage insurance in force increased 2.2% year over year to $272.8 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 Jun 30, 2024, up 100 basis points (bps) year over year.
Primary delinquent loans were 20,276 as of Jun 30, 2024, up 2% year over year. Total expenses increased 10.1% year over year to $133 million. The expense ratio was 28.5, which improved 110 bps from the year-ago quarter.
Segmental Update
The Mortgage segment reported a year-over-year increase of 9.8% in total revenues to $285.9 million. Net premiums earned by the segment were $235 million, up 11.4% year over year. Claims paid were $6 million, which increased 100% year over year. The loss ratio was negative 0.8 compared with negative 10.3 in the year-ago quarter.
The All Other segment reported a year-over-year increase of 33.8% in total revenues to $39.7 million. Net premiums earned by the segment were $2.9 million, up 8% year over year. Net investment income grew 54.8% year over year to $23.6 million. Adjusted pretax operating loss was $6 million, narrower than the year-ago loss of $13.7 million.
Financial Update
As of Jun 30, 2024, Radian Group had a solid cash balance of $13.8 billion. The debt-to-capital ratio deteriorated 80 bps to 25.2 from the 2023-end level. Book value per share, a measure of net worth, climbed 11.9% year over year to $29.66 as of Jun 30, 2024.
In the second quarter, adjusted net operating return on equity was 13.6%, which contracted 50 bps year over year. The risk-to-capital ratio of Radian Guaranty as of the second-quarter end was 10.3:1 compared with 10.4:1 reported at the end of 2023. As of Jun 30, 2024, Radian Guaranty’s Available Assets under PMIERs totaled around $6 billion, which resulted in PMIERs excess Available Assets of $2.2 billion.
Share Repurchase and Dividend Update
In May 2024, the board authorized an increase to its existing share repurchase program from $300 million to $900 million and extended the term to Jun 30, 2026. In the second quarter, Radian repurchased 1.6 million shares worth $50 million, including commissions. As of Jun 30, 2024, purchase authority of up to $667 million remained available under the existing program.
Radian Group paid a dividend totaling $37 million on Jun 20, 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Radian has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Radian has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Radian belongs to the Zacks Insurance - Multi line industry. Another stock from the same industry, CNO Financial , has gained 2.5% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
CNO reported revenues of $1.07 billion in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $1.05 for the same period compares with $0.54 a year ago.
CNO is expected to post earnings of $0.84 per share for the current quarter, representing a year-over-year change of -4.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.8%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for CNO. Also, the stock has a VGM Score of C.
Zacks Investment Research
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