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Radian Group (RDN) Up 75.6% in a Year: What's Driving It?

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Radian Group (RDN - Free Report) shares have gained 75.6% in the past year, outperforming the industry's increase of 58.6%. The Zacks S&P 500 composite has increased 51.1% in the said time frame. With market capitalization of $4.5 billion, average volume of shares traded in the last three months was 1.4 million.

The rally was largely driven by lower persistency, low interest rates, robust capital position as well as prudent capital deployment.

Over the past seven days, the company’s 2020 and 2021 earnings estimates have moved 0.7% and 0.3% north, respectively.

It delivered an earnings surprise of 6.15% in the last reported quarter.

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Can It Retain the Momentum?

The Mortgage Insurance segment of this Zacks Rank #3 (Hold) insurer, which contributes the lion’s share to its net premiums earned, is fueled by the purchase market. The company continues to maximize the economic value and future earnings of mortgage insurance portfolio. The economic value and the projected future earnings of this portfolio include the addition of high-quality 2020 vintage, which represented more than 40% of insurance in force in 2020.

Recent trends of lower persistency and higher levels of new insurance written have also contributed to a faster rate of change in the yield of mortgage insurance portfolio.

Despite the negative impacts of COVID-19 pandemic, the broader mortgage and real estate market continued to perform well with strong purchase volume growth and significant home price appreciation.

Total mortgage originations are expected to be approximately $3 trillion in 2021. According to the recent market projections estimate, the private mortgage insurance market is expected to be approximately $450 billion to $500 billion. With declining refinance volume, the insurer will gain from increased persistency in portfolio, which in turn supports insurance-in-force growth.

The housing market continues to gain from low interest rates and strong housing demand.

This multi-line insurer expects the combination of continued strong supply and demand dynamics, low interest rates and income growth to support a healthy and sustainable housing market in 2021.

Radian Group maintained a strong capital position with $1.4 billion of total holding company liquidity. Its debt to capital of 26.9% betters the industry average of 29%. It strengthened its liquidity by extending the term of existing credit facility to January 2022 and issuing $525 million of senior notes due 2025. The pandemic has not affected the capital position of Radian and it is well-positioned to endure any uncertainty with strong Private Mortgage Insurer Eligibility Requirements (PMIERs) capital and holding company available liquidity.

The company raised its dividend at a seven-year (2014-2021) CAGR of 80.5% and the company’s current dividend yield stands at 2.1%. At present, it has $198.9 million remaining under the share repurchase authorization.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $2.73 and $3, indicating year-over-year increase of 56.9% and 10.9%, respectively.

Moreover, Radian’s return on equity was 8.3% in the trailing 12-month period, higher than the industry average of 7.5%, that identifies its efficiency in utilizing its shareholders’ funds.

Stocks to Consider

Some better-ranked players from the insurance industry include Trean Insurance Group, Inc. (TIG - Free Report) , Primerica, Inc. (PRI - Free Report) and James River Group Holdings Ltd. (JRVR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Trean Insurance surpassed estimates in two of the last four quarters, with the average being 34.38%.

Primerica’s bottom line surpassed estimates in three of the last four quarters, the average beat being 8.36%.

James River Group surpassed estimates in three of the last four quarters, with the average being 11.63%.

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