A month has gone by since the last earnings report for MGIC Investment (MTG). Shares have added about 12.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MGIC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
MGIC Investment's Q2 Earnings Miss, Revenues Fall Y/Y
MGIC Investment Corporation reported second-quarter 2020 adjusted net operating income per share of 3 cents, which missed the Zacks Consensus Estimate by 80%. The bottom line also declined 93.5% year over year.
The results were impacted by creation of loan loss reserves for expected losses on new loan delinquencies, which witnessed a surge primarily due to the COVID-19 pandemic.
Insurance in force improved 7.7% to $230.5 billion, primarily attributable to new business writings partly offset by lower persistency.
The company witnessed a surge of 133% in primary delinquency to 69,326 loans due to adverse economic impact of COVID-19. Notably, as of Jun 30, 2020, 67% of the company’s delinquency inventory stemmed from COVID-19 related forbearance plans.
MGIC Investment reported total operating revenues of $287 million, which declined 1.7% year over year on lower net investment income and net premiums earned.
Net premiums earned fell 1.4% year over year to $243.6 million in the second quarter. The downside is mainly due to lower premium rates and reduced profit commission as a result of higher ceded incurred losses, partly mitigated by improved average insurance in force and a rise in premiums from single premium policy cancellations.
Net investment income decreased 6.4% year over year to $39.7 million, due to reduced investment yields partly offset by growth in the consolidated investment portfolio.
Persistency, the percentage of insurance remaining in force from one year prior, was 68.2% as of Jun 30, 2020, down 1260 basis points (bps) year over year.
New insurance written was $28.2 billion, up 89.3% year over year. The surge clearly highlights strength of the purchase mortgage market and the refinance market amid the pandemic-induced market volatility.
Net underwriting and other expenses totaled $47.2 million, which increased 3.3% year over year. In the quarter under review, loss ratio was 89.2%, which deteriorated 8040 bps year over year.
Book value per share, a measure of net worth, grew 4.4% to $12.95 as of Jun 30, 2020 from 2019 end.
MGIC Investment had $530 million in investments, cash and cash equivalents, up 63.1% from the figure at 2019 end.
Total assets were $6.6 billion, up 6.5% from 2019-end level. PMIERs available assets were $4.5 billion, which is $1.1 billion above its minimum required assets as of Jun 30, 2020.
MGIC did not pay dividends to its holding company during second-quarter 2020. Nevertheless, on Jul 30, 2020, MGIC Investment Corporation announced quarterly cash dividend of 6 cents per share, which will be paid on Aug 28, 2020 to shareholders of record as on Aug 11. The company also did not buy back shares during the quarter under review.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 22.92% due to these changes.
At this time, MGIC 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, MGIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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