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Radian Group (RDN): Should You Hold the Stock Right Now?

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Radian Group Inc. (RDN - Free Report) has successfully met the ever-changing demands and expectations of its clients, building a solid product and service portfolio over the years. The company remains focused on maintaining the same to further improve the overall results in future.

Radian Group’s mortgage insurance portfolio is expected to create a strong foundation for future earnings. The company has been writing a high volume of quality and profitable business since 2008. Given the projected increase in persistency, the company expects insurance in force to rise in 2017.

The company has been witnessing a decline in claim payments over the last few years. It expects claims paid for full-year 2017 between $300 million and $325 million. Given the strong credit characteristics of the new loans insured, we expect the company to see fewer claims than before. Also, Radian Group remains on track to control costs, thereby facilitating margin expansion.

Radian Group’s growth initiatives continue to impress. Its efforts to further diversify the revenue stream and expand its business beyond traditional mortgage insurance are encouraging.

Also, the Zacks Rank #3 (Hold) Multi line insurer’s efforts to strengthen its financial position and improve debt maturity profile raise optimism.

However, the company’s escalating expenses continue to raise concerns. To that end, Radian Group expects expenses to be between $62 million and $66 million each quarter. Also, rising mortgage rates remain a headwind for the company.

Shares of Radian have rallied 30.80% in the last one year, underperforming the industry’s increase of 32.25%. However, we expect top-line growth, improving new mortgage insurance written and a robust capital position to help the stock turn around in the near term.



Nonetheless, valuation is attractive at present as the stock is currently trading at a price to book multiple of 1.27 over a period of one year, a 2.3% discount to the industry average of 1.30.

Besides, the company has a trailing 12-month return on equity (ROE) of 12.8%, higher than the industry’s 7.7% average. Furthermore, the company’s expected long-term earnings growth is pegged at 5.00%.

Stocks to Consider

Some better-ranked stocks from the insurance industry are American Financial Group, Inc. (AFG - Free Report) , CNO Financial Group, Inc. (CNO - Free Report) and FBL Financial Group, Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Financial provides property and casualty insurance products in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 17.03%.

CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 6.69%.  

FBL Financial sells individual life insurance and annuity products. The company delivered positive surprises in three of the last four quarters with an average beat of 6.23%.

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