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Why Is MGIC (MTG) Up 9% Since Last Earnings Report?

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A month has gone by since the last earnings report for MGIC Investment (MTG - Free Report) . Shares have added about 9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MGIC due for a pullback? 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.

MGIC Investment's Q2 Earnings Beat, Revenues Rise Y/Y

MGIC Investment Corporation reported second-quarter 2021 adjusted net operating income per share of 44 cents, which beat the Zacks Consensus Estimate by 4.8%. Moreover, the bottom line surged more than 14-fold year over year. The company witnessed higher premiums earned and net investment income as well as improved loss ratio, offset by higher expenses.

Operational Update

Insurance in force improved 13.7% from the prior-year quarter to $262 billion.
The company witnessed a decline of 37.9% in primary delinquency to 42,999 loans.

Notably, as of Jun 30, 2021, 55% of the loans in delinquency inventory stemmed from COVID-19 related forbearance plans. MGIC Investment reported total operating revenues of $297.9 million, which increased 1.3% year over year on higher premiums earned and higher net investment income.

Net premiums earned grew 3.3% year over year to $251.5 million in the second quarter. The upside was due to increases in insurance in-force and profit commission. These were partially offset by decrease in premium yield.

Net investment income increased 3.6% year over year to $41.1 million due to increase in the consolidated investment portfolio. It was partially offset by lower investment yields.

Persistency, the percentage of insurance remaining in force from one year prior, was 57.1% as of Jun 30, 2021, down 1110 basis points (bps) year over year. New insurance written was $33.6 billion, up 19.1% year over year. The increase highlights strength of the purchase mortgage market and its position in the market.

Net underwriting and other expenses totaled $56.8 million, up 20.3% year over year due to increases in professional and consulting services related to investments in infrastructure.  This was partially offset by decreases in employee compensation costs. In the quarter under review, loss ratio was 11.6%, which improved 7760 bps year over year.

Financial Update

Book value per share, a measure of net worth, grew 4.3% to $14.48 as of Jun 30, 2021 from 2020 end. MGIC Investment had $772 million in investments, cash and cash equivalents, down 8.8% from the figure at 2020 end.

Total assets were $7.6 billion, up 3% from 2020-end level. PMIERs available assets were $5.7 billion, which were $2.3 billion above its minimum required assets as of Jun 30, 2021.

Capital Deployment

MGIC did not pay dividends to its holding company during second-quarter 2021. Nevertheless, on Jul 29, 2021, MGIC Investment Corporation authorized a 33% increase in the quarterly common stock dividend, which will be paid on Aug 26, 2021 to  shareholders of record as on Aug 12. The company also did not buy back shares during the quarter under review.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 9.46% due to these changes.

VGM Scores

Currently, MGIC has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

MGIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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