It has been about a month since the last earnings report for Radian (RDN). Shares have added about 5.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Radian due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Radian Group Falls Short of Q2 Earnings Estimates
Radian Group reported second-quarter 2020 operating loss of 36 cents per share in contrast to the Zacks Consensus Estimate of earnings of 19 cents and the year-ago earnings of 80 cents.
The company witnessed elevated loss provision due to the increase in the number of new defaults, which include defaults of loans subject to forbearance programs implemented, attributable to the COVID-19 pandemic.
Quarter in Details
Operating revenues declined 15.7% year over year to $289 million, attributable to lower net premiums earned, services revenue, net investment income and other income.
MI New Insurance Written grew 37% year over year to $25.5 billion backed by rebound in the housing market.
Primary mortgage insurance in force was $241.3 billion as on Jun 30, 2020, up 5% year over year.
Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 70.2% as of Jun 30, 2020, down 1320 basis points year over year.
Primary delinquent loans were 69,742 as of Jun 30, 2020, up more than three-fold year over year.
Total expenses surged 119% year over year to $406.7 million on account of higher provision for losses.
Earlier, the company reported results under two segments – Mortgage Insurance and Services. This year in January, Radian decided to divest Clayton Services LLC to Covius Holdings. Apart from reorganizing its Services segment, the deal highlighted the company’s focus on growing its core mortgage and real estate businesses. Hence, from the first quarter of 2020, the company started reporting results under Mortgage and Real Estate segments.
Net premiums earned by the Mortgage segment were $247.6 million, down 16.4% year over year. Claims paid were $22.8 million in the quarter under review, down 29.6% year over year. Loss ratio deteriorated to 122.8% from year-ago figure of 15.9%.
The Real Estate segment reported a 5.4% year-over-year decrease in total revenues to $26.1 million. Adjusted earnings before interest, income taxes, depreciation and amortization (Real Estate adjusted EBITDA) was negative $0.7 million, compared with negative $0.5 million in the year-ago quarter.
As of Jun 30, 2020, Radian Group had solid cash balance of $68.4 million, down 26.3% from 2019-end level. Debt to capital ratio deteriorated 800 bps to 26% from 2019 end level.
Book value per share, a measure of net worth, grew 13% year over year to $20.82 as of Jun 30, 2020.
Adjusted net operating return on equity was (7.1%) versus 18.2% in the year-ago quarter.
Risk-to-capital ratio of Radian Guaranty as of second-quarter end was 13.3:1, lower than 13.6:1 from 2019 end level.
Excess available resources to support PMIERs were $2.4 billion as of Jun 30, 2020, 73% above Radian Guaranty's minimum required assets of about $3.2 billion. During the second quarter, excess available resources to support PMIERs increased by $361 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 18.75% due to these changes.
Currently, Radian has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Radian has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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