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Radian's (RDN) Earnings Beat Estimates in Q2, Increase Y/Y

Zacks Equity Research

Radian Group Inc.’s RDN second-quarter 2019 operating income of 80 cents per share beat the Zacks Consensus Estimate by 14.3% on the back of improved revenues. The bottom line also improved 16% year over year. The company benefited from higher premiums earned by its Mortgage Insurance segment.

The quarter proved to be excellent for the company as it witnessed growth in revenues and mortgage insurance. However, the performance was partly offset by higher expenses.

Radian Group Inc. Price, Consensus and EPS Surprise

Radian Group Inc. Price, Consensus and EPS Surprise

Radian Group Inc. price-consensus-eps-surprise-chart | Radian Group Inc. Quote

Behind the Headlines

Operating revenues grew 18.3% year over year to $343 million, courtesy of higher net premiums and investment income. Moreover, total revenues (including services revenues, and net gain on investments and other financial instruments) were $394 million, up nearly 23.7% year over year.
New mortgage insurance grew around 9% year over year to $231 billion. As of Jun 30, 2019, total primary mortgage insurance in force was $230.8 billion, up 9% year over year.

MI New Insurance Written grew 13% year over year to $18 billion.
Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 83.4% as of Jun 30, 2019, up 250 basis points year over year.

Primary delinquent loans were 19643 as of Jun 30, 2019, down 2% year over year.

Total expenses increased 33.7% year over year to $185.4 million due to higher provision for losses, cost of services and loss of extinguishment of debt.

Segment Update

Net premiums earned by the Mortgage Insurance segment were $296.3 million, up 19% year over year. Claims paid were $32.4 million in the quarter under review, down 42.7% year over year. Loss ratio improved 810 basis points to 15.9%.

The Services segment reported a 6% year-over-year increase in total revenues to $43 million. Adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) were $1.4 million against loss of $0.9 million in the year-ago quarter.

Financial Update

As of Jun 30, 2019, Radian Group had solid cash balance of $74 million, down from $95.5 million year over year.

Book value per share, a measure of net worth, grew 22.7% year over year to $18.40 as of Jun 30, 2019.

Adjusted net operating return on equity contracted 110 basis points year over year to 18.2% in the quarter.

Risk-to-capital ratio-Mortgage Insurance as of second-quarter end was 13.3:1 compared 11.8:1 at the end of the year-ago quarter.

Radian Group is firmly focused on improving its capital position, boosting return on capital and enhancing its financial flexibility.

In the second quarter, Radian Group bought back shares worth $166 million of the company’s common stock including commissions.

Zacks Rank

Radian Group currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Of the insurance industry players that have already reported second-quarter results, the bottom-line figures of The Progressive Corporation PGR and RLI Corp. RLI beat the respective Zacks Consensus Estimate. However, The Travelers Companies, Inc.’s TRV metric missed the mark.

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