Essent Group Ltd. ESNT is poised for long-term growth on the back of a solid mortgage insurance portfolio. Also, the company will benefit from millennials entering their peak buying years. It also maintains capital in compliance with regulations. The expected long-term earnings growth rate is pegged at 10%.
The company has seen its 2019 and 2020 estimates move up 2.4% and 1.6% in the past 60 days, reflecting analyst confidence in the company.
Essent Group’s return on equity was 19.9% in 2018, better than industry average of 7.1%. Return on equity, a profitability measure, identifies how efficiently the company is utilizing its shareholders fund.
Essent Group’s mortgage insurance portfolio is expected to create a strong foundation for future earnings. The company expects purchase mortgage demand to rise as millennials enter their peak buying years. This, in turn, will drive demand and support the housing industry in the long term.
Further increasing supply of new starter homes and strengthening of economy with low unemployment are tailwinds.
This Zacks rank #3 (Hold) mortgage insurer has been witnessing an increase in net premiums over the last several years driven by high credit quality and profitable mortgage insurance portfolio. Rising premiums have boosted the top line which witnessed a five-year CAGR of 34.4%.
Essent Group has been maintaining capital in compliance with regulations. As of Dec 31, 2018, Essent Group’s risk-to-capital ratio was 13.9:1 compared with 14.2:1 as of Dec 31, 2017. As of Dec 31, 2018, the combined U.S. mortgage insurance business statutory capital was $1.9 billion.
Shares of the company have rallied 31.9% year to date, outperforming the industry’s increase of 30% and the Zacks S&P 500 composite’s increase of 14.5%.
The Zacks Consensus Estimate for 2019 earnings is pegged at $5.22 per share, indicating 7.6% year-over-year increase while for 2020, the consensus mark of $5.60 indicates 7.4% growth. The company has a solid track of outperforming earnings expectations in the last 12 quarters, reflecting operational excellence.
Stocks to Consider
Some better-ranked stocks from the finance sector are Cincinnati Financial Corp. CINF, Arch Capital Group Ltd. ACGL, and Berkshire Hathaway Inc. BRK.B.
Cincinnati Financial provides property casualty insurance products in the United States. The company delivered a 22.50% positive surprise in the last reported quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products worldwide. The company delivered positive surprise in all the last four reported quarters, with the average being 14.72%.
Berkshire Hathaway provides property and casualty insurance and reinsurance plus life, accident and health reinsurance besides operating railroad systems in North America. The company came up with positive surprise in three of the preceding four reported quarters, the average being 4.31%.
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