Radian Group: A Strong Buy - Analyst Blog

On Jun 7, Zacks Investment Research upgraded Radian Group Inc. RDN to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Radian Group has been witnessing rising earnings estimates on the back of strong first-quarter 2014 results.

Radian Group reported operating net earnings of 42 cents a share, outperforming the Zacks Consensus Estimate by 110% and reversed the loss of 10 cents incurred in the year-ago quarter.

GAAP net income of 94 cents per share rebounded from the year-ago loss of $1.30 per share. The improvement came on the back of higher revenues coupled with lower expenses.

The mortgage insurer has been witnessing a decline in primary default rate since 2009, when it was at the highest level of 18%. Total number of primary delinquent loans decreased 38% year over year with primary default rate of 6.3% at quarter end.

Risk-to-capital ratio was 19.2:1 at quarter end, improving sequentially from 19.4:1 on the back of higher net income but was partially offset by an increase to net risk in force. Statutory capital at quarter end improved 28% year over year to $1.4 billion.

In addition, to provide credit-based services to the mortgage finance market, Radian Group agreed to acquire Clayton Holdings for $305 million cash. The acquisition of Clayton Holdings, a leading provider of outsourced solutions to the mortgage industry, will open up new revenue generating avenues and expand Radian Group's involvement in the residential mortgage market value chain with services.

Strong results along with the strategic acquisition prompted upward revisions in all 4 estimates over the last 30 days. This led to a 77% surge in the Zacks Consensus Estimate for 2014 which is currently pegged at $1.75. The expected long-term growth rate for the stock is 3%.

Other Stocks to Consider

Investors interested in the multi-line insurance industry may also consider stocks like Horace Mann Educators Corp. HMN, Old Republic International Corporation ORI and MGIC Investment Corp. MTG. While Horace Mann and Old Republic share the same Zacks Rank as Radian Group, MGIC Investment carries a Zacks Rank #2 (Buy).
 


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