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Why Is Radian (RDN) Up 12.3% 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 added about 12.3% 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 catalysts.

Radian's Q1 Earnings Beat Estimates, Improve Y/Y

Radian Group Inc.’s first-quarter 2020 operating income of 80 cents per share beat the Zacks Consensus Estimate by 14.3%. Further, the bottom line improved 10% year over year. The company benefited from improved premiums earned from its Mortgage segment.

Volume of new mortgage insurance business was high in the first quarter, which led toyear-over-year increase of 8% in high-quality insurance in force portfolio.

Quarter in Details

Operating revenues grew 13.6% year over year to $351 million, courtesy of higher net premiums. Net premiums earned improved 5.3% year over year to $277.4 million. However, total revenues (including services revenues, and net gain on investments and other financial instruments) were $329.1 million, down 9.5% year over year. Also, net investment income declined 6.6% year over year to $40.9 million.

As of Mar 31, 2020, total primary mortgage insurance in force was $241.6 billion, up 8% year over year.

MI New Insurance Written grew 53% year over year to $16.7 billion.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 75.4% as of Mar 31, 2020, down 800 basis points year over year.

Primary delinquent loans were 19,781 as of Mar 31, 2020, down 2% year over year.

Total expenses increased marginally year over year to $147.8 million on account of higher provision for losses and policy acquisition costs.

Segment Update

Earlier, the company reported results under two segments – Mortgage Insurance and Services. This year in January, Radian decided to divest Clayton Services LLC to Covius Holdings. Apart from reorganizing its Services segment, the deal highlighted the company’s focus to grow its core mortgage and real estate businesses. Hence, the company reported results under Mortgage and Real Estate segments from first quarter of 2020.

Net premiums earned by the Mortgage segment were $275 million, up 5.1% year over year. Claims paid were $23.4 million in the quarter under review, down 32.4% year over year. Loss ratio deteriorated 480 basis points to 12.8%.

The Real Estate segment reported a 24.3% year-over-year increase in total revenues to $28.6 million. Adjusted earnings before interest, income taxes, depreciation and amortization (Real Estate adjusted EBITDA) came in at a loss of $0.4 million,narrower than the loss of $0.5 million in the year-ago quarter.

Financial Update

As of Mar 31, 2020, Radian Group had solid cash balance of $54.1 million, down 41.6% from 2019-end level.

Book value per share, a measure of net worth, grew 16.1% year over year to $20.30 as of Mar 31,2020.

In the first quarter, Radian Group bought back 11 million shares for $226.3 million. At Mar 31, 2020, the company had $198.9 million available under the existing program, which expires on Aug 31, 2021. However, the company had announced waiver ofits share repurchase program on Mar 25 of this year.

Adjusted net operating return on equity contracted 140 basis points year over year to 16.3% in the quarter.

Risk-to-capital ratio-Mortgage Insurance as of first-quarter end was 12.4:1, which remained flat with the year-ago quarter.

Adverse Effect of COVID-19

The COVID-19 pandemic has induced volatility in the financial markets. Consequently, Radian apprehends the pandemic to negatively impact second-quarter 2020financial results. It also expects the future quarters to get affected by the pandemic.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -78.38% due to these changes.

VGM Scores

At this time, Radian has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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 B. 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 these revisions 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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