On Wednesday, Keefe, Bruyette & Woods analyst Bose George revised the price target for Radian Group (NYSE:RDN) shares, traded on the New York Stock Exchange under the ticker NYSE:RDN, to $40.00, a slight decrease from the previous target of $41.00. Despite this adjustment, the firm maintains an Outperform rating on the stock.
George highlighted Radian Group, along with Essent Group (NYSE:ESNT), as top picks for the quarter, noting their trading positions just above book value. The analyst expressed a preference for mortgage insurers (MIs) that are trading closer to their book value, including Essent Group (NYSE: ESNT), Radian Group, and Arch Capital Group (NASDAQ: NASDAQ:ACGL), as opposed to others like MGIC Investment Corp. (NYSE: NYSE:MTG) and NMI Holdings (NASDAQ: NASDAQ:NMIH), which trade at higher multiples. InvestingPro confirms this valuation thesis, showing Radian's price-to-book ratio at 1.01, while maintaining strong profitability with a gross margin of 95%.
The valuation appeal of Radian Group and its peers is underscored by the expectation of low-double-digit to mid-teens return on equity (ROE). Moreover, the potential for these companies to return capital to shareholders through buybacks adds an element of attractiveness, particularly for those with a longer investment horizon.
InvestingPro data reveals that Radian has maintained dividend payments for 32 consecutive years and has raised its dividend for 5 consecutive years, with a current dividend yield of 3.09%.
The analyst also pointed out that in a market environment characterized by sustained higher interest rates and lower loan origination rates, mortgage insurers like Radian Group stand out for their earnings resilience.
This resilience stems from the growth in insurance in force (IIF), which drives the earnings of these companies. The company's financial strength is evident in its current ratio of 4.2, indicating strong liquidity, while maintaining a healthy revenue growth of 6.23% over the last twelve months.
In other recent news, Radian Group has demonstrated a strong financial performance with robust Q3 results and a promising outlook. The firm reported Q3 revenues of $334 million and a net income of $152 million. The company's book value per share saw an 18% year-over-year increase, reaching $31.37, while its primary mortgage insurance in force grew to $275 billion.
Radian Group also expanded its credit facility from $125 million to $300 million, enhancing its financial flexibility. The company, along with JPMorgan, agreed to extend the termination date of their Master Repurchase Agreement, a key component of Radian's capital management operations.
In other developments, Radian Group announced that board member Lisa W. Hess (NYSE:HES) will retire in 2025. The decision for retirement did not stem from any disagreement with Radian's operations, policies, or practices. The company has not yet detailed any changes to the board's composition following Hess's retirement.
Despite a slight increase in default loans and a $10 million impairment on internal software, Radian Group reported strong cure rates and generated $40 million in total revenues from its "all other" business lines. Radian Group anticipates the mortgage insurance market to remain stable at around $300 billion for 2024, with a projected 10% increase in 2025.
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