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Why You Must Retain MGIC Investment (MTG) in Your Portfolio


Shares of MGIC Investment Corporation MTG have gained 9.52% year to date, outperforming the Zacks categorized Multi line Insurance industry’s gain of 4.34%. The company also witnessed full-year 2017 and 2018 estimates moving north 7% and 3.7%, respectively over the past 60 days. We expect the company to retain this momentum on the back of a number of positives.

MGIC Investment has remained focused on growing insurance in force. However, given the current market environment, the company anticipates to write approximately the same amount of new insurance as 2016. Nonetheless, new business and the expected increase in persistency are anticipated to grow insurance in force moderately in 2017.

Further, MGIC Investment witnessed a substantial decline in paid claims over the last few quarters. Banking on lesser claim filings, the Multi line insurer expects a further decrease in the metric, in the near term. A decline in loss and claims will, in turn, strengthen the company’s balance sheet, improving the financial profile.

This apart, the Multi line insurer’s growing private mortgage market share continues to boost insurance in force, driving future revenues. MGIC Investment expects to gain 19–20% market share in the industry it operates. It currently has 18% market share.

Additionally, a strong capital position will allow the company to repurchase some of the convertible debt in order to lower its interest burden as well as facilitate margin expansion.

However, intense competition and increased premium rate changes, which will put pressure on the company’s top line, will remain headwinds.

The valuation on the other hand seems attractive when compared with the S&P 500. While shares of MGIC Investment are trading at 1.43x price to book multiple over a period of one year, the S&P 500 market’s multiple shows 3.63x over the same time frame. However, the stock is trading higher than the Multi line Insurance industry’s multiple of 1.29x.

Further, MGIC Investment has a trailing 12-month return on equity (ROE) of 17.0%, which is way higher than the industry average of 6.9%.

Zacks Rank

Currently, MGIC Investment carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks from the same space include Assurant, Inc. AIZ, Cigna Corporation CI and Old Republic International Corporation ORI. Each stock holds a Zacks Rank #2 (Buy).

Assurant offers risk management solutions for housing and lifestyle markets worldwide. The company delivered positive surprises in three of the last four quarters with average beat of 6.82%.

Cigna provides insurance and related products and services in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 1.35%.

Old Republic deals in insurance underwriting and related services business, primarily in the U.S. and Canada. The company delivered positive surprises in two of last four quarters with average beat of 12.71%.

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