Radian or MGIC Investment: Which is a Better-Positioned Stock?
The Zacks Multiline Insurance industry has been benefiting from product diversification that helps multiline insurance industry players lower concentration risks, ensure uninterrupted revenue generation and improve the retention ratio. The industry is well-poised to benefit from better pricing, prudent underwriting, increased exposure, faster economic recovery on the receding impacts of the pandemic and increased vaccinations.
The industry has lost 2.9% in the past year against the Zacks S&P 500 composite’s growth of 15.8% and the Finance sector’s 6.2% increase.
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Here we focus on two multiline insurers, namely Radian Group Inc. RDN and MGIC Investment Corporation MTG.
Radian Group, with a market capitalization of $3.9 billion, engages in the mortgage and real estate services business in the United States and offers credit-related insurance coverage. MGIC Investment Corporation, with a market capitalization of $4.4 billion, provides private mortgage insurance, other mortgage credit risk management solutions and ancillary services to lenders and government sponsored entities in the United States. RDN and MTG carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The multiline insurance industry provides single insurance coverage, bundling automobile, long-term care, and life and health insurance to individuals and businesses. Since the companies offer single insurance coverage for multiple products, customer retention improves. The insured stands to benefit from lower premium payments than paying individual premiums for insuring varied products.
With three rate hikes in 2023, investment income should improve further, as insurers are beneficiaries of a rising rate environment. As of now, Fed has held back the hiking cycle after 10 straight increases but expects two more rate hikes in future. An improving rate environment is favorable for long-tail insurers. Also, investment income is an important component of an insurer’s top line.
Increased awareness, driving higher demand for protection products, should benefit sales and premiums for life insurance operations. Continued improvements in pricing and an increase in exposure should support premium growth. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023, while non-life premiums are expected to increase 2.2%. Per Deloitte Insights, commercial lines are witnessing more growth than personal lines, which is estimated to continue into 2023. Also, homeowners’ premiums have been improving better than personal auto.
Consolidation in the multiline insurance industry is expected to continue, as insurers look to diversify their operations into new business lines and geographies. The solid capital level of the multiline insurers will fuel merger and acquisition activities to ramp up growth, and aid these insurers in engaging in shareholder-friendly moves.
Insurers have increased investment in emerging technologies in a bid to drive efficiency, enhance cybersecurity, upgrade policy administration and claims systems and expand automation capabilities across their organizations.
Let's delve deeper into specific parameters to ascertain which multiline insurer is better positioned at the moment.
Price Performance
Radian has gained 27% in the past year, outperforming MGIC Investment’s rise of 23.2% and against the industry’s decline of 2.9%.
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Return on Equity (ROE)
Radian, with a ROE of 19.9%, exceeds MGIC Investment’s ROE of 18.7% and the industry average of 9.7%.
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Valuation
The price-to-book value is the best multiple used for valuing insurers. Compared with Radian’s P/B ratio of 0.95, MGIC Investment is cheaper, with a reading of 0.93. The multiline insurance industry’s P/B ratio is 2.24.
Dividend Yield
Radian’s dividend yield of 3.6% is better than the MGIC Investment’s dividend yield of 2.5%. Thus, RDN has an advantage over MTG on this front.
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Debt-to-Capital
Radian’s debt-to-capital ratio of 27.2 is higher than MGIC Investment’s reading of 12.1, while that of industry average is 37.6.
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Earnings Surprise History
Radian has a solid record of beating earnings estimates in each of the last seven quarters. MGIC Investment beat earnings estimates in six of the last seven quarters and met the same once.
Hence, RDN has an edge in this regard over MTG.
VGM Score
VGM Score rates each stock on its combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum. MGIC Investment has a VGM Score of B, while Radian has a VGM Score of C. Thus, MTG is better placed.
Earnings Estimates
For 2023, the Zacks Consensus Estimate for MGIC Investment has moved 3.3% north to $2.19 in the past 60 days, while the same for Radian has been revised 6.5% north to $3.28. Therefore, RDN is in an advantageous position over MTG on this front.
To Conclude
Our comparative analysis shows that Radian Group is better positioned than MGIC Investment with respect to price, return on equity, dividend yield, earnings surprise history and earnings estimates. Meanwhile, MGIC Investment scores higher in terms of valuation, leverage and VGM Score. With the scale significantly tilted toward Radian, the stock appears to be better poised.
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MGIC Investment Corporation (MTG) : Free Stock Analysis Report
Radian Group Inc. (RDN) : Free Stock Analysis Report
