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MGIC Investment Corporation MTG has been gaining momentum on the back of higher average insurance in force (IIF), new business written, higher average investment yields and robust financial position.
The company has been effectively improving its return on equity (ROE) over the years. ROE of 11.1% in the trailing twelve months was better than the industry average of 7.8%, reflecting the company’s efficiency in utilizing shareholders’ fund.
Over the past 60 days, the company’s 2021 earnings estimates have moved 1.2% north, reflecting investor optimism.
Premium growth is likely to be driven by higher average insurance in force and an increase in accelerated premiums from single premium policy cancellations, and higher premium rates on IIF. Growth in IIF is driven by the company’s ability to generate New Insurance Written (NIW) and retain existing policies in force, as measured by persistency. In recent quarters, there has been an increase in NIW from refinances. NIW is likely to increase driven by new business written, increase in the mortgage origination market and increase in market share and strong persistency.
Net investment income, one of the major components of the insurer’s revenues, continues to benefit from higher average investment portfolio balance.
Its main business objective is to align resources to provide critical support to the housing market, especially first time in low and moderate wealth homebuyers. In a bid to achieve this, it focuses on working with the Government Sponsored Enterprises (GSEs) and investors, loss mitigation programs that assist homeowners, competitive products and services to customers while maintaining a sharp focus on sources and uses of capital. It is expected that the housing market will continue to remain resilient.
It continues to focus on building a strong capital position and financial flexibility with several external and internal transactions. It is supported by a balance sheet that has a low debt-to-capital ratio, an investment portfolio of nearly $7 billion, modest leverage of $6.8 billion in cash and investments, contractual premium flow and a robust reinsurance program. Its debt to capital of 21.6% betters the industry average of 29.9%.
Further, its times interest earned of 11.9X is better than the industry's average of 3.3X, implying that its earnings are sufficient to cover its interest obligations.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $1.59, indicating year-over-year increase of nearly 25.9%.
Shares of this Zacks Rank #2 (Buy) multi-line insurer have gained 79.3% in the past six months, compared with the industry’s rise of 29.4%.
Moreover, it has an impressive Value Score of B. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space.
Other Stocks to Consider
Some other top-ranked stocks in the insurance industry include The Allstate Corporation ALL, CNO Financial Group, Inc. CNO and Kemper Corporation KMPR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Allstate surpassed bottom-line estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 38.59%, on average.
CNO Financial surpassed bottom-line estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 36.09%, on average.
Kemper surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 24.01%, on average.
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The Allstate Corporation (ALL) : Free Stock Analysis Report
MGIC Investment Corporation (MTG) : Free Stock Analysis Report
CNO Financial Group, Inc. (CNO) : Free Stock Analysis Report
Kemper Corporation (KMPR) : Free Stock Analysis Report
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