On Nov 25, Zacks Investment Research upgraded Radian Group Inc. RDN to a Zacks Rank #2 (Buy).
Why the Upgrade?
Radian Group has been witnessing upward revisions in earnings estimates on the back of strong third-quarter 2016 results. This multiline insurer reported earnings of 41 cents in the third quarter with a positive earnings surprise of 5.13%. Earnings improved 32.3% year over year. In fact, Radian Group witnessed the highest volume of new flow mortgage insurance business written. The insurer continues to benefit from positive credit trends, including decline in total number of delinquent loans, high quarterly cure rates and continued outstanding performance from newest books of mortgage insurance business. Long-term earnings growth is pegged at 7.5%
Revenues improved 4.5% year over year to $313 million in the third quarter. The top line also outpaced the Zacks Consensus Estimate by 9.9%. The improvement was largely driven by higher net premiums earned and service revenues.
In the reported quarter, new mortgage insurance written improved 40%, whereas primary delinquent loans decreased 18%, both on a year-over-year basis. Total claims paid decreased considerably through the first three quarters and the company now expects claims paid for full-year 2016 to be about $375 million. Given the strong credit characteristics of the new loans insured, we expect the company to see fewer claims than before.
Also, the company remains focused on controlling costs. The company is poised to achieve annual expense reductions of $12 billion in 2016. Radian estimates core operating expenses in the fourth quarter to be lower by 3–5% from the prior-year level.
Banking on balance sheet strength, the company purchased about $21.2 million of its outstanding 2.25% Convertible Senior Notes, due 2019. It also redeemed the remaining $196 million aggregate principal amount outstanding of its 9.000% Senior Notes, due 2017. Long-term debt at the quarter end declined 8.3% year over year. On the other hand, book value per share, a measure of net worth, grew 14% year over year to $13.47 as of Sep 30, 2016.
The Zacks Consensus Estimate for 2016 inched up 1.3% to $1.55 as most of the estimates were revised higher over the last 30 days.
With respect to surprise trend, the multiline insurer surpassed expectation in three of the last four quarters with an average beat of 5.9%.
Other Stocks to Consider
Other well-ranked stocks from the same space are AEGON N.V. AEG, FBL Financial Group Inc. FFG and James River Group Holdings, Ltd. JRVR. All these companies carry the same Zacks Rank as Radian Group. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AEGON, which provides life insurance, pensions, and asset management services, witnessed upward estimate revisions over the last 30 days. The Zacks Consensus Estimate moved up 4.1% to $2.28 for 2016 and 1.2% to $2.48 for 2017.
FBL Financial Group, which sells annuity and individual life insurance products, beat expectation in two of the last four quarters with an average beat of 3.26%
James River Group, which provides of specialty insurance and reinsurance services in the United States, beat expectation in three of the last four quarters with an average beat of 3.60%
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