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Radian (RDN) Down 4.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Radian (RDN - Free Report) . Shares have lost about 4.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Radian Group Q3 Earnings Beat Estimates, Improve Y/Y

Radian Group Inc.’s third-quarter 2018 operating income of 71 cents per share beat the Zacks Consensus Estimate by 12.7%. The bottom line also improved 54.3% year over year.

The company benefited from a solid performance at its Mortgage Insurance segment along with higher premiums. It continued to grow its insurance in force portfolio, a major catalyst for future earnings.

The third quarter proved to be excellent for the company as it witnessed growth in net income, mortgage insurance in force, net operating return on equity as well as book value per share. The performance in this quarter represents strong customer relations, quality of the team and a robust financial position.

Net income per share came in at 66 cents, which improved a whopping 120% from the year-ago quarter.

Behind the Headlines

Operating revenues grew 10.6% year over year to $298.6 million, courtesy of higher net premiums, investment income as well as other income. Total revenues (including services revenues and net loss on investments and other financial instruments) totaled $330.7 million, up nearly 5.9% year over year.

Total net premiums earned were $258.4 million, up nearly 9.2% year over year.

New mortgage insurance written grew 4.2% year over year to $15.8 billion (on a flow basis) in the quarter under review. As of Sep 30, 2018, total primary mortgage insurance in force was $217.1 billion, up 10.5% from $196.5 billion as of Sep 30, 2017.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 81.4% as of Sep 30, 2018. The company reported a persistency of 80% as of Sep 30, 2017.

Primary delinquent loans were 20,770 in the third quarter, down 12.8% year over year.

Total expenses decreased 30.2% year over year to $145.9 million, primarily on the back of lower provision for losses, cost of services, restructuring and other exit costs as well as interest expense.

Segment Update

Net premiums earned by Mortgage Insurance segment were $255.5 million, up nearly 7.9% year over year. Claims paid were $59.8 million in the quarter under review, down 54.5% year over year. Loss ratio improved 710 basis points to 8.1%.

The Mortgage and Real Estate Services segment reported a 0.5% year-over-year dip in total revenues to $40.9 million. Pre-tax operating loss of $7.9 million was narrower than the year-ago quarter’s loss of $12.9 million.

Restructuring and other exit costs was $0.4 million in the reported quarter.

Financial Update

As of Sep 30, 2018, Radian Group had a solid cash balance of $104.4 million, up 68.6% year over year.

Long-term debt was $1 billion, up 0.3% year over year.

Book value per share, a measure of net worth, grew 13% year over year to $15.69 as of Sep 30, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Radian has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Radian has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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