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NMI Holdings Up 93% Year to Date: Will the Momentum Last?

Zacks Equity Research

NMI Holdings, Inc. NMIH has been in investors’ good books owing to its consistent operating performance and niche position in the mortgage insurance industry, which is gaining from strong housing mortgage market.

The company’s premiums have increased over the years, contributing to overall growth.

Year to date, the stock has gained 93%, outshining its industry’s growth of 9.9%.  The stock has also performed better than other companies in the same space such as Genworth Financial, Inc. GNW, MGIC Investment Corp. MTG and Radian Group Inc. RDN. While Genworth has declined 14.8%, MGIC Investment and Radian have gained 36% and 57%, respectively.

In 2018, the share was up 5%. The stock price gain in 2019 was driven by investors’ optimism over the company’s strong business environment. NMI Holdings is a provider of mortgage insurance and its business is largely dependent on housing market.

NMI Holdings’ results year to date were supported by the low interest rate environment, which continued to spur increased purchase and refinancing volume and helped drive incremental home price appreciation. Lower rates make purchasing houses more affordable and are particularly beneficial for first-time homebuyers.

The company is also optimistic about the macroeconomic environment and the outlook for the mortgage insurance market. During the course of the year, the company has witnessed strength in its insured borrowers, driven by record low unemployment, strong wage growth and sustained home price appreciation.

The company gains from macroeconomic factors such as low national unemployment and mortgages, the rates of which have been below 4% in more than 50 years. This mix of macroeconomic factors sets up well for both new business flow and the credit performance of its in-force portfolio going forward.

The ongoing efforts to reform the U.S. Housing Finance System is likely to be a positive for the company, as it is expected to improve the long-term health of the mortgage market.

In June this year, the company also received a favorable ratings action from Standard & Poor’s Global Ratings, which  upgraded National MI’s (a unit of the company)  financial strength and issuer credit ratings to “BBB” from “BBB-” and the company’s ’s issuer credit rating to “BB” from “BB-“ with a positive outlook. The outlook means that ratings can further improve in the next 24 months. In October, Moody's upgraded its insurance financial strength and holding company debt ratings by one notch.

NMI Holdings has generated return on equity of 21% compared with the industry’s average of 6.8%. In 2017, the company’s ROE was in 5% level.
NMI Holdings’ strong positioning in the mortgage insurance market, which is expected to expand, will boost its long-term growth trajectory.

NMI Holdings carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has been revised 2.4% upward over the last seven days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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