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MGIC (MTG) Down 2.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Patterson-UTI (PTEN) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for MGIC Investment (MTG). Shares have lost about 2.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MGIC due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

MGIC Investment Q1 Earnings Top Estimates

MGIC Investment reported first-quarter 2019 operating net income per share of 42 cents, which beat the Zacks Consensus Estimate and were 10.5% higher than the year-ago earnings.

Insurance in force increased largely driven by strong persistency and the addition of $10.1 billion of high-quality new insurance writings.

The company witnessed lower delinquency attributable to a favorable operating environment driven by better employment, wage growth, and higher housing demand. The quarter also witnessed low credit losses.

Operational Update   

MGIC Investment recorded total operating revenues of $291.7 million, which increased 9.7% year over year on higher net investment income (up 26.5%) and higher premiums earned (up 7.6%).

Net premiums earned increased on higher average insurance in force and a decrease in ceded premiums during the quarter, partially offset by the effect of lower premium rates.

Insurance in force was $211.4 billion as of Mar 31, 2019, up 7.1% year over year.

Persistency, the percentage of insurance remaining in force from one year prior, was 81.7% as of Mar 31, 2019, up 150 basis points (bps) year over year.

Net investment income increased on higher yields.

New insurance written was $10.1 billion, down 4.7% year over year.

Net paid claims were $57 million. The number of claims received declined 30%, reflecting continued declines in delinquency inventory.

Net underwriting and other expenses totaled $48.4 million, down 0.5% year over year. Total loss and expenses increased 17.5% on higher losses incurred.

In the quarter under review, loss ratio was 15.6%, down 530 bps year over year.  Underwriting expense ratio of 18.9% improved 60 bps year over year.

Financial Update

Book value per share, a measure of net worth, grew nearly 23.2% year over year to $10.72 as of Mar 31, 2019.

MGIC Investment had $299 million in cash and investments, up 16.3% year over year.

Risk-to-capital ratio was 9.6:1 as of Mar 31, 2019 compared with 10.3:1 as of Mar 31, 2018.

Debt-to-total capital ratio was 18% at the end of the quarter, down 100 bps from 2018 end.

The company paid $70 million in dividend to the holding company. Also, the board of directors approved additional $200 million worth share buyback authorization.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, MGIC has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

MGIC has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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