Radian Group (RDN) Rises 40% YTD: Can It Retain the Bull Run?
Radian Group’s RDN shares have gained 40% year to date against the industry’s decrease of 5.5%. The Finance sector has risen 2.2% and the Zacks S&P 500 index has gained 14.6% in the said time frame. With a market capitalization of $4.2 billion, the average volume of shares traded in the last three months was 1.1 million.
Improving mortgage insurance portfolio, declining claims, a well-performing homegenius segment, solid capital position and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer.
The insurer’s earnings have increased 19% in the past five years, better than the industry average of 5.4%. The expected long-term earnings growth is pegged at 5%. RDN has a solid surprise history, beating earnings estimates in each of the last seven reported quarters.
Radian’s return on equity for the trailing 12 months is 17.3%, which compares favorably with the industry’s 10.5%, reflecting the company’s efficiency in utilizing shareholders’ funds.
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Will the Bull Run Continue?
Radian’s earnings are poised to grow on the strength of its mortgage insurance portfolio. The primary mortgage insurance in force should benefit from an increase in single premium policy insurance in force and a higher monthly premium policy. Notably, based on a total mortgage origination market of $1.7 trillion, Radian expects the private mortgage insurance market in 2023 to be around $325 billion.
Persistency rate is poised to show improvement, given lower refinance activity, due to an increase in mortgage interest rates. Its business restructuring moves are focused on the core business and services with higher growth potential, ensuring a predictable and recurring fee-based revenue stream
RDN has been witnessing declining claims over the past few years. Given the strong credit characteristics of the new loans insured, we expect the company to witness a lesser number of claims, favoring profitability.
However, Radian’s homegenius title and real estate businesses are affected by a decrease in industry-wide mortgage and real estate transaction volume, inflationary pressures and a higher interest rate environment. Nonetheless, with the continuing focus on disciplined cost management, Radian remains hopeful about managing the homegenius business through this challenging environment.
Banking on operational excellence, this mortgage insurer maintains a solid balance sheet with sufficient liquidity and strong cash flows.
Solid liquidity favors effective capital deployment. RDN has increased dividends for four straight years and boasts the highest dividend yield in the private MI industry. Its current dividend yield of 3.5% is better than the industry average of 2.7%. RDN has $280 million remaining under its buyback authorization.
Stocks to Consider
Some top-ranked stocks from the multi-line insurance industry are Old Republic International Corporation ORI, Everest Group, Ltd. EG and American International Group AIG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Republic International’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 14.1%.
The Zacks Consensus Estimate for ORI’s 2024 earnings has moved 3 cents north in the past 60 days and implies 1.9% year over year increase. Year to date, the insurer has gained 11.8%.
Everest Group’s earnings surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 17.36%.
The Zacks Consensus Estimate for EG’s 2023 and 2024 earnings implies 88.7% and 15.4% year-over-year growth, respectively. Year to date, the insurer has climbed 20.1%.
AIG’s earnings surpassed estimates in the last four quarters, the average earnings surprise being 13.45%.
The Zacks Consensus Estimate for AIG’s 2023 and 2024 earnings implies 47.9% and 19.8% year-over-year growth, respectively. Year to date, the insurer has lost 2.6%.
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