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Radian (RDN) Up 2.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Radian (RDN - Free Report) . Shares have added about 2.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Radian 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 drivers.

Radian Q4 Earnings Top Estimates, Premiums Rise Y/Y

Radian Group's fourth-quarter 2018 operating income of 70 cents per share beat the Zacks Consensus Estimate by 6.1%. The bottom line also improved 37% year over year. The company benefited from solid performance of its Mortgage Insurance segment along with higher premiums. It continued to grow its insurance in force portfolio, a major catalyst for future earnings.

The fourth 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.

Behind the Headlines

Operating revenues grew 8.9% year over year to $305 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) were $331.5 million, up nearly 4.3% year over year.

Total net premiums earned were $261.7 million, up 6.7% year over year.

New mortgage insurance written declined 11% year over year to $12.7 billion (on a flow basis) in the quarter under review. As of Dec 31, 2018, total primary mortgage insurance in force was $221.4 billion, up 10% from $200.7 billion as of Dec 31, 2017.

The company expects to write new MI business of about $50 billion in 2019.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 85.5% as of Dec 31, 2018, up 610 basis points year over year.

Primary delinquent loans were 21,093 as of Dec 31, 2018, down 24% year over year.

Total expenses increased 1.2% year over year to $155 million, primarily on the back of higher policy acquisition costs, cost of services and other operating expenses, interest expense and amortization and impairment of other acquired intangible assets.

Full Year Highlights

Operating income of $2.69 per share missed the Zacks Consensus Estimate of $2.76. The bottom line also improved 48% year over year.

Operating revenues grew 8% year over year to $1.3 billion.

New mortgage insurance written grew 5% year over year to $56.5 billion. Persistency was 83.1% as of Dec 31, 2018, up from 81.1% as of Dec 31, 2017.

Segment Update

Net premiums earned by Mortgage Insurance segment were $259.7 million, up nearly 5.9% year over year. Claims paid were $39.7 million in the quarter under review, down 53.6% year over year. Loss ratio improved 400 basis points to 10.4%.

The Mortgage and Real Estate Services segment reported a 2% year-over-year dip in total revenues to $41.5 million. Pre-tax operating loss of $5.2 million was wider than the year-ago quarter’s loss of $5 million.

Restructuring and other exit cost were $0.1 million in the reported quarter.

Financial Update    

As of Dec 31, 2018, Radian Group had a solid cash balance of $107 million, up 11.2% year over year.

Long-term debt was $1 billion, up 0.4% year over year.

Book value per share, a measure of net worth, grew 18% year over year to $16.34 as of Dec 31, 2018.

Adjusted net operating return on equity expanded 420 basis points year over year in 2018.

Risk to capital ratio-Mortgage Insurance as on 2018 end was 12.8:1 versus 12.1:1 from year ago end.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Radian has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 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 indicates a downward shift. 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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