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Why Is Radian (RDN) Down 2.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Radian (RDN - Free Report) . Shares have lost about 2.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Radian due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Radian Group Beats on Q1 Earnings, Raises Dividend

Radian Group Inc. reported first-quarter 2021 adjusted operating income of 68 cents per share, which outpaced the Zacks Consensus Estimate by 1.5%. However, the bottom line declined 15% year over year.

Quarterly results reflect decline in net premiums earned, lower persistence, and higher expenses. However, there was an increase in new insurance written, monthly premium mortgage insurance in force and title revenues. The company noted positive momentum in the housing market and favorable credit trends.

Quarter in Details

Operating revenues decreased 11.4% year over year to $311 million due to lower services revenues, net premiums earned and net investment income.
Net premiums earned  were $254.1 million, down about 2% year over year. Net investment income declined 6.6% year over year to $38.3 million. MI new insurance written rose about 21% year over year to $20.2 billion.

Primary mortgage insurance in force was $238.9 billion as on Mar 31, 2021, down 1.1% year over year. The decline can be primarily attributed to 26.3% decline in single premium policy insurance in force, partially offset by a 8.7% increase in monthly premium policy insurance in force.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 62.5% for the quarter, down 1400 basis points (bps) year over year. Primary delinquent loans were 51,106 as of Dec 31, 2020, more than double year over year.

Total expenses increased 13.4% year over year to $167.6 million on account of higher provision for losses, policy acquisition costs, other operating expenses and interest expense.

Segmental Update

The Mortgage segment reported year-over-year decrease of 3.6% in total revenues to $303.8 million. Net premiums earned was $264.7 million, down 3.7% year over year. Claims paid were $10.5 million in the quarter under review, declining 55.1% year over year. Loss ratio deteriorated 450 bps year over year to 17.3.

The Real Estate segment reported a year-over-year decline of 2.8% in total revenues to $25.8 million. Net premiums earned by the segment were $7.2 million, more than double year over year.  Adjusted earnings before interest, income taxes, depreciation and amortization (real estate adjusted EBITDA) was a loss of $5.9 million against income of $0.9 million in the year-ago quarter.

Financial Update

As of Mar 31, 2021, Radian Group had solid cash balance of $102.8 million, up 16.9% from 2020-end level.  Debt to capital ratio deteriorated 20 bps to 24.9 from 2020 end level. Book value per share, a measure of net worth, climbed 9% year over year to $22.14 as of Mar 31, 2021.

In the first quarter, adjusted net operating return on equity was 12.4% compared with 16.3% in the year-ago quarter. Risk-to-capital ratio of Radian Guaranty as of first-quarter end was 11.9:1, lower than 12.7:1 from 2020 end level.

Excess available resources to support PMIERs came in at $2.7 billion as of Mar 31, 2021, which stands 79% above Radian Guaranty's minimum required assets of about $3.4 billion.

Share Repurchase and Dividend Update

Radian bought back shares worth $8.6 million in the quarter. As of Mar 31, 2021, the company had $190.2 million remaining under its share repurchase authorization. The board of directors approved a 12% increase in its quarterly dividend to 14 cents per share. The dividend is payable on Jun 4, 2021, to shareholders of record on May 24, 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Radian has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward 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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