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NMI Holdings (NMIH) Rises 53% YTD: Will the Rally Continue?

Zacks Equity Research

NMI Holdings’ NMIH shares have surged 52.9% year to date, outperforming the industry's growth of 6.2% and the Zacks S&P 500 composite’s rise of 18%. Sizable mortgage insurance in force, increase in new insurance written (NIW), comprehensive risk management approach and solid balance sheet should continue to drive the stock.

With a market capitalization of $1.8 billion, average volume of shares traded in the last three months was 0.5 million.

Is the Bull Run Likely to Continue?

This Zacks Rank #2 (Buy) provider of private mortgage guaranty insurance services in the United States has a solid track record of delivering positive earnings surprise in the last eight quarters, reflecting operational excellence.

NMI Holdings has an impressive VGM Score of B. The style score helps to identify stocks with the most attractive value, growth and momentum. Back-tested results have shown that VGM Score of A or B, combined with Zacks Rank #1 (Strong Buy) or 2, offers best investment opportunity.

NMI Holdings should continue to benefit from decline in interest rate, improved employment scenario (low unemployment and wage growth) and favorable demographic trends. The company expects low rate environment to increase purchase and refinancing volume.

The company’s Rate GPS-risk based pricing is driving volumes. The company noted that more than 95% of its lenders are currently using it, and over 90% of second-quarter NIW volume was generated via Rate GPS. Thus, this engine should help the company enhance risk return management.

In August, the company entered into the third insurance-linked notes (ILN) transaction to shield itself from adverse credit losses. The ILN structure weathers the potential impact of credit volatility within insured portfolio and provides an efficient source of growth capital to fund PMIER needs.

NMI Holdings’ return on equity was 19.7% in the trailing 12-month period, higher than the industry average of 6.8%. Return on equity is a profitability measure that identifies the company’s efficiency in utilizing its shareholders’ funds.  

The Zacks Consensus Estimate for the company’s 2019 and 2020 earnings indicates improvement of 44.6% and 25.1%, respectively from the year-ago reported figure.

The company stated that its attractive credit profile and embedded value of insured portfolio, coupled with disciplined approach to risk management, expenses and capital optimization, will continue to drive performance. It has a favorable Growth Score of A. This style score identifies growth prospects of a company.

The company’s estimates for 2019 and 2020 have moved up 3% and 3.1%, respectively, in the past 60 days.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include Cincinnati Financial CINF, Hallmark Financial Services HALL and Donegal Group DGICA, each sporting Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial provides property casualty insurance products in the United States. The company delivered 32.81% positive surprise in the last reported quarter.

Hallmark Financial underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The company delivered 20.22% positive surprise in the last reported quarter.

Donegal Group provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England, and southern states. The company delivered 160.00% positive surprise in the last reported quarter.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.