Radian (RDN) Down 7.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Radian (RDN). Shares have lost about 7.8% in that time frame, outperforming 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 catalysts.

Radian Group Q4 Earnings & Revenues Beat Estimates

Radian Group’s fourth-quarter 2019 operating income of 86 cents per share beat the Zacks Consensus Estimate by 13.16%. Moreover, the bottom line improved nearly 23% year over year. Results gained from an increase in premiums earned by the company’s Mortgage Insurance segment.

Volume of the flow mortgage insurance business was record high in the quarter, which drove a 23% year-over-year increase.

Behind the Headlines

Operating revenues grew 12.8% year over year to $344 million on higher net premiums and services revenues. The top line beat the Zacks Consensus Estimate by 11%. Moreover, total revenues (including net investment income, net gain on investments, and other financial instruments and other income) were $388 million, up 17.1% year over year.

As of Dec 31, 2019, total primary mortgage insurance in force was $240.6 billion, up 9% year over year.

MI New Insurance Written grew 57% year over year to $20 billion.

Persistency — the percentage of mortgage insurance in force, which remains in the company’s books after a 12-month period — was 78.2% as of Dec 31, 2019, down 490 basis points (bps) year over year.

Primary delinquent loans were 21,266 as of Dec 31, 2019, up 1% year over year.

Total expenses increased 17.7% year over year to $182.4 million due to higher provision for losses, policy acquisition costs, cost of services, other operating expenses, impairment of goodwill, and amortization & impairment of other acquired intangible assets.

Segmental Performance

Net premiums earned by the Mortgage Insurance segment were $298.5 million, up 15% year over year. Claims paid were $28.5 million in the quarter under review, down 28.2% year over year. Loss ratio deteriorated 110 basis points to 11.5%.

The Services segment reported a 6% year-over-year increase in total revenues to $44 million. Adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) were $2.2 million compared with $3.2 million in the year-ago quarter.

Financial Update

As of Dec 31, 2019, Radian Group had solid cash balance of $96.3 million, down from $107 million as on Dec 31, 2018.

Book value per share, a measure of net worth, grew 23% year over year to $20.13 as of Dec 31, 2019.

Adjusted net operating return on equity contracted 10 basis points year over year to 17.8% in the quarter.

Risk-to-capital ratio-Mortgage Insurance as of the end of the fourth quarter was 12.3:1 compared with 12.8:1 at the end of the year-ago quarter.

In the fourth quarter, Radian Group bought back 1.1 million shares for $25 million. In January, the company purchased an additional 381,331 shares for $9.4 million of Radian Group common stock, including commissions. At Jan 31, 2020, the company had $140.6 million available under the existing program.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Radian has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 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.