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Radian Group on Growth Ground: Time to Retain the Stock

Zacks Equity Research

Radian Group Inc. RDN has successfully met the ever-altering, flexible demands and expectations of its clients, building a solid product and service portfolio over the years. Maintaining this impressive track record, the Zacks Rank #3 (Hold) Multi line insurer continues to perform for better yields and remains focused on improving overall results.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $1.72 on revenues of $1.2 billion for 2017. While the top line reflects a year-over-year rally of 15.5%, the bottom line increases 10.5%. For 2018, the Zacks Consensus Estimate for earnings per share is pegged at $1.89 on $1.3 billion revenues. While earnings represent a 9.7% climb, revenues reflect an 11.3% rise.

Notably, Radian Group has long-term expected earnings per share growth of 5.0%.

An Outperformer: Shares of Radian Group have improved 3.5% quarter to date, outperforming the industry’s loss of 1.2%. We expect top-line growth, improving new mortgage insurance written and a robust capital position to drive the stock higher in the near term.

Growth Drivers: Radian Group’s mortgage insurance portfolio is expected to create a strong foundation for future earnings. The company has been writing a high volume of quality and profitable business since 2008. Given the projected increase in persistency, the company expects insurance in force to rise in 2017.

The company has been witnessing a decline in claim payments over the last few years. It estimates claims paid for full-year 2017 between $300 million and $325 million. Given the strong credit characteristics of the new loans insured, we assume the company to see fewer claims than before. Also, Radian Group is on track to control costs, thus facilitating margin expansion.

Radian Group’s growth initiatives deserve praise. Its efforts to further diversify the revenue stream and expand business beyond traditional mortgage insurance are encouraging.

VGM Score: Radian Group carries a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three factors.

Attractive Valuation: Valuation is attractive at present as the stock is currently trading at a price-to-book multiple of 1.25 in a year’s time, a massive 6.7% discount to the industry average of 1.34. Also, the stock carries a Value Score of B. Value investors look for those stocks with value lower than the intrinsic one.

Positive Earnings Surprise History: Radian Group has surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 3.42%.

Stocks to Consider

Some better-ranked stocks from the insurance industry are First American Corp. FAF, CNO Financial Group, Inc. CNO and FBL Financial Group, Inc. FFG. Each of these stocks holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First American Corporation provides financial services. The company delivered positive surprises in all the last four quarters with an average beat of 12.64%.

CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.69%.

FBL Financial sells individual life insurance and annuity products. The company delivered positive surprises in three of the last four quarters with an average beat of 6.23%.

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Radian Group Inc. (RDN) : Free Stock Analysis Report
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