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Why Is Radian (RDN) Up 8.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Radian (RDN - Free Report) . Shares have added about 8.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Radian 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 catalysts.

Radian Group Q3 Earnings Beat Estimates, Tumble Y/Y

Radian Group reported third-quarter 2020 adjusted operating income of 59 cents per share, which outpaced the Zacks Consensus Estimate by 22.9%. However, the bottom line declined 27.2% year over year.

The company’s results benefited from growth in the housing market and consistent positive default trends across its mortgage insurance portfolio. A strong housing market has led to an uptick in new primary mortgage insurance business written.

However, the benefits were partially offset by lower revenues and elevated loss provision stemming from rise in number of new defaults, which encompass loans subject to forbearance programs executed as a result of the COVID-19 pandemic.

Quarter in Details

Operating revenues decreased 0.3% year over year to $324 million, attributable to lower services revenue and net investment income. Nonetheless, the results partly benefited from higher net premiums earned and other income.

Net premiums earned was $286.5 million, which inched up 1.9% year over year. However, net investment income slumped 15.2% year over year to $36.3 million.

MI New Insurance Written surged 51.2% year over year to $33.3 billion backed by a strong housing market.

Primary mortgage insurance in force was $245.5 billion as on Sep 30, 2020, up 3.5% year over year. The growth can be primarily attributed to higher monthly premium insurance in force, partially offset by reduced single premium insurance in force.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 65.6% as of Sep 30, 2020, down 1590 basis points (bps) year over year.

Primary delinquent loans were 62,737 as of Sep 30, 2020, up more than three-fold year over year.

Total expenses increased 31.6% year over year to $214 million on account of higher provision for losses, policy acquisition costs and interest expense.

Segmental Update

The Mortgage segment reported year-over-year increase of 0.7% in total revenues to $320 million. Net premiums earned by the segment were $283.4 million, up 2.1% year over year. Claims paid were $10.8 million in the quarter under review, down 70.5% year over year. Loss ratio deteriorated 2050 bps year over year to 31%.

The Real Estate segment reported a year-over-year rise of 10.6% in total revenues to $33.3 million. Net premiums earned by the segment were $3.1 million, down 13.2% year over year.  Adjusted earnings before interest, income taxes, depreciation and amortization (Real Estate adjusted EBITDA) was ($1.4) million against income of $0.9 million in the year-ago quarter.

Financial Update

As of Sep 30, 2020, Radian Group had solid cash balance of $82 million, down 11.5% from 2019-end level.  Debt to capital ratio deteriorated 740 bps to 25.4% from 2019 end level.

Book value per share, a measure of net worth, climbed 11% year over year to $21.52 as of Sep 30, 2020.

In the third quarter, adjusted net operating return on equity was 11.3% compared with 17.4% in the year-ago quarter.

Risk-to-capital ratio of Radian Guaranty as of third-quarter end was 13.2:1, lower than 13.6:1 from 2019 end level.

Excess available resources to support PMIERs came in at $2.3 billion as of Sep 30, 2020, which stands 67% above Radian Guaranty's minimum required assets of about $3.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Radian has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Radian has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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