On Wednesday, Keefe, Bruyette & Woods made adjustments to its stock price target for Essent Group (NYSE:ESNT), a mortgage insurance company. Analyst reduced the price target to $72.00 from the previous $75.00 while maintaining an Outperform rating on the shares.
The firm's analysis highlighted Essent Group along with Radian Group (NYSE:NYSE:RDN) as top picks for the quarter, noting that both companies' shares are trading just above their book value.
Keefe, Bruyette & Woods expressed a preference for mortgage insurers (MIs) trading closer to book value, including Essent Group, Radian Group, and another unnamed company referred to as ACT. These were favored over competitors like MGIC Investment Corp. (NYSE:NYSE:MTG) and NMI Holdings Inc. (NASDAQ:NMIH), which trade at higher multiples of their book value.
The firm's outlook on Essent Group is based on expectations for low-double-digit to mid-teens return on equities (ROEs). Moreover, the potential for these companies to return capital through buybacks was cited as a positive factor, particularly for investors with longer time horizons.
InvestingPro data reveals that Essent has maintained a strong ROE of 14% and has consistently raised its dividend for six consecutive years, with a 12% dividend growth rate in the last twelve months.
The resilience of mortgage insurance earnings in a scenario where interest rates remain higher for an extended period and loan originations are low was also noted. Keefe, Bruyette & Woods believes that Essent Group and its peers are well-positioned in the market due to the growth in insurance in force (IIF), which drives their earnings.
In other recent news, Essent Group reported a stable Q3 performance in the face of economic challenges. The company registered a net income of $176 million, or $1.65 per diluted share, a slight dip from $178 million and $1.66 per share in the same period last year. Despite hurdles such as economic fluctuations and recent hurricanes, the firm's mortgage insurance portfolio saw growth and the company upheld a robust capital position.
The mortgage insurance portfolio expanded to $243 billion, marking a 2% year-over-year increase. Alongside, investment income and other income rose, with a provision for losses recorded at $30.7 million. The company also paid out $58 million in dividends and repurchased shares worth $9.6 million.
Essent Group's CEO, Mark Casale, reiterated the company's commitment to strategic expansion and fiscal discipline. Despite a minor uptick in the default rate to 1.95%, mainly attributed to seasonal factors and portfolio aging, the firm anticipates a return to normalcy moving forward.
The company's investment portfolio is gradually returning to a normal mix, with increased investments in corporate bonds and debt securities. These are among the recent developments for Essent Group.
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