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Here's Why Radian Group (RDN) Stock is an Attractive Bet Now

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Zacks Equity Research
·4 min read
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Radian Group RDN is well-poised for growth, driven by higher strong mortgage origination market, higher investment yields, solid capital position and prudent capital deployment.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $2.64, indicating year-over-year increase of 67.1%.

Over the past 60 days, the company’s 2020 and 2021 earnings estimates have moved 7.5% and 2.7% north, respectively.

Radian’s business model is proven and continues to both evolve and improve with strong and consistent capital standards, dynamic risk-based pricing, efficient operations and an emphasis on credit risk management including programmatic risk distribution.

The increased purchase loan demand combined with the strong refinance volume from continued low interest rates drive record volume of new primary mortgage insurance business.

New Insurance Written, a major component of current business strategy, continues to benefit from strong mortgage origination market including higher refinance activity, aided by a historically low interest rate environment, and increased private mortgage insurance penetration rates.

Given higher investment yields and higher average investment balances owing to investing positive cash flow from operations, investment income is expected to improve despite the current low interest rate environment. Services revenues also continue to benefit from ongoing growth in title services.

Total liquidity, including undrawn $267.5 million unsecured revolving credit facility, was $1.4 billion at third-quarter end. With $1.4 billion of available liquidity at Radian Group, and a strong PMIERs position, the company is well placed to leverage strong capital position and navigate this uncertain environment through the cycle. The strength of capital position combined with ability to effectively manage and distribute risk has enabled it to continue writing significant levels of high-quality mortgage insurance business through the cycle.

In October 2020, Radian Guaranty, an insurance subsidiary of Radian Group, entered into a fully collateralized reinsurance agreement with Eagle RE 2020-2 Limited. It provides for up to $390.3 million of aggregate excess of loss reinsurance coverage for mortgage insurance losses on new defaults on an existing portfolio of eligible recurring premium policies with initial risk in-force of $13 billion.

The company increased its dividend at a six-year (2014-2020) CAGR of 99.2% and currently yields 2.5% compared with the industry average of 2.2%. These make the stock appealing to yield-seeking investors.

Moreover, Radian’s 9.5% return on equity (ROE) is better than the industry average of 7.8%, reflecting its efficiency in utilizing shareholders’ funds.

However, shares of this Zacks Rank #2 (Buy) multi-line insurer have lost 19.8% in a year compared with the industry’s decline of 11.8%.

Other Players

Other key players in the multi-line insurance industry include James River Group Holdings Ltd. JRVR, Old Republic International Corporation ORI, Horace Mann Educators Corporation HMN, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

James River Group surpassed estimates in three of the last four quarters, with the average surprise being 11.68%.

Old Republic International surpassed estimates in each of the last four quarters, with the average being 49.02%.

Horace Mann Educators surpassed estimates in each of the last four quarters, with the average being 22.05%.

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Radian Group Inc. (RDN) : Free Stock Analysis Report
 
Old Republic International Corporation (ORI) : Free Stock Analysis Report
 
James River Group Holdings, Ltd. (JRVR) : Free Stock Analysis Report
 
Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report
 
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Zacks Investment Research