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MGIC Investment (MTG) Up 75.4% in a Year: More Room to Run?

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Shares of MGIC Investment Corporation (MTG - Free Report) have gained 75.4% in a year compared with the industry's increase of 40.8%. The Zacks S&P 500 composite has rallied 40.6% in the said time frame. With a market capitalization of $4.7 billion, average volume of shares traded in the last three months was 2.9 million.

Zacks Investment ResearchImage Source: Zacks Investment Research

The rally was largely driven by higher new business premiums, declining claim payments, and robust capital position.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $1.67 and $1.88, indicating year-over-year increase of 26.5% and 12.3%, respectively.

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.

Will the Bull Run Continue?

Premium growth is likely to be driven by higher average insurance in force and an increase in accelerated premiums from single premium policy cancellations, and higher premium rates on insurance in force (IIF).

New insurance written (NIW) is likely to increase driven by new business written, increase in the mortgage origination market, increase in market share and strong persistency.

Banking on strong market presence, a low level of delinquencies, a comprehensive reinsurance program and new business written, this multi-line insurer remains well poised to capitalize on opportunities.

This Zacks Rank #3 (Hold) insurer remains focused on offering support to the current housing market, especially low- and moderate-income and first-time homebuyers. To meet this objective, it provides competitive products and better services to mortgage originators and servicers and uses its capital efficiently.

Riding on solid credit performance, reinsurance transactions and continued strong cash from operations, the insurer expects that the spread of its Private Mortgage Insurer Eligibility Requirements (PMIERs) available assets over PMIERs minimum required assets grew nearly $500 million in the first quarter.

Declining claim payments strengthen the balance sheet. The number of claims received in the quarter remained very low due to the various foreclosure and eviction moratoriums. The company expects claim payments to remain modest for several quarters.

MGIC Investment boasts a solid balance sheet with cash and investments of $802 million and has low debt-to-capital ratio. Its debt to capital of 20.8% is better than the industry average of 30.1%. Riding on lower level of losses paid and higher net premium written, it continues to generate solid operating cash flows.

Furthermore, its times interest earned, a measure to identify the company ability to service debt, is 9.7 compared with the industry’s average of 2.3, implying that its earnings are sufficient to cover interest obligations.

Currently, it has $291 million remaining under its share repurchase authorization. Due to the COVID-19 pandemic, it had temporarily discontinued stock repurchase but may resume it in the near future.

Moreover, return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. Its trailing 12 months ROE of 9.9% is higher than the industry average of 8.5%.

Key Players

Some better-ranked players in the multi-line insurance industry are Old Republic International Corporation (ORI - Free Report) , Assurant, Inc. (AIZ - Free Report) and Horace Mann Educators Corporation (HMN - 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.

Old Republic surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 53.01%, on average.

Assurant surpassed bottom-line estimates in three of the last four quarters and missed in one. It has a trailing four-quarter earnings surprise of 21.71%, on average.

Horace Mann Educators surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 33.43%, on average.

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