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Radian (RDN) Up 7.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Radian (RDN - Free Report) . Shares have added about 7.5% 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’s Q4 Earnings Beat, Revenues Fall Y/Y

Radian Group Inc. reported fourth-quarter 2020 adjusted operating income of 69 cents per share, which outpaced the Zacks Consensus Estimate by 6.1%. However, the bottom line declined 19.8% year over year.

The company’s results benefited from growth in New Insurance Written, and higher monthly premium insurance in force, offset by higher expenses.

Full-Year Highlights

For 2020, Radian Group delivered operating income of $1.74 per share, which beat the Zacks Consensus Estimate by 3.6%. However, operating income decreased 45.8% from the previous year. Revenues decreased 6.6% year over year to $1.4 billion.

Quarter in Details

Operating revenues decreased 0.9% year over year to $341 million, attributable to lower services revenues, other income and net investment income. Nonetheless, the results partly benefited from higher net premiums earned.

Net premiums earned was $302.1 million, up 0.2% year over year. However, net investment income slumped 8% year over year to $38.1 million. MI New Insurance Written surged 49.2% year over year to $29.8 billion.

Primary mortgage insurance in force was $246.1 billion as on Dec 31, 2020, up 2.3% 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 61.2% as of Dec 31, 2020, down 1700 basis points (bps) year over year. Primary delinquent loans were 55,537 as of Dec 31, 2020, up nearly three-fold year over year.

Total expenses increased 4.6% year over year to $190.7 million on account of higher provision for losses, policy acquisition costs and interest expense.

Segmental Update

The Mortgage segment reported year-over-year decrease of 4.2% in total revenues to $325.5 million. Net premiums earned by the segment were $286.8 million, down 3.9% year over year. Claims paid were $40.6 million in the quarter under review, up 42.3% year over year. Loss ratio deteriorated 810 bps year over year to 19.6%.

The Real Estate segment reported a year-over-year rise of 7.3% in total revenues to $23.6 million. Net premiums earned by the segment were $7.6 million, up three-fold year over year.  Adjusted earnings before interest, income taxes, depreciation and amortization (Real Estate adjusted EBITDA) was a loss of $7 million, wider than a loss of $2.4 million in the year-ago quarter.

Financial Update

As of Dec 31, 2020, Radian Group had solid cash balance of $87.9 million, down 5.2% from 2019-end level.  Debt to capital ratio deteriorated 670 bps to 24.7% from 2019 end level. Book value per share, a measure of net worth, climbed 11% year over year to $22.36 as of Dec 31, 2020.

In the fourth quarter, adjusted net operating return on equity was 12.9% compared with 17.8% in the year-ago quarter. Risk-to-capital ratio of Radian Guaranty as of fourth-quarter end was 12.7:1, lower than 13.6:1 from 2019 end level.

Excess available resources to support PMIERs came in at $2.7 billion as of Dec 31, 2020, which stands 80% above Radian Guaranty's minimum required assets of about $3.4 billion.

Share Repurchase Update

As of Dec 31, 2020, the company had $198.9 million remaining under its share repurchase authorization.

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 an A. Following the exact same course, 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 B. 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. Notably, Radian has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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