Radian Group Stock Rises 24.3% YTD: Can It Maintain the Upside?

Shares of Radian Group Inc. RDN have rallied 24.3% year to date (YTD), outperforming the industry’s 21% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 22% and 17.8%, respectively, YTD. With a market capitalization of $5.33 billion, the average volume of shares traded in the last three months was 0.8 million. Currently priced at $35.49, the stock is a little below its 52-week high of $37.86.

RDN Outperforms Industry, Sector, S&P YTD

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The rally was largely driven by an improving mortgage insurance portfolio, declining claims, a solid capital position and effective capital deployment.
This multi-line insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 21.30%.

RDN Trading Above 50-Day and 200-Day Moving Average

This Zacks Rank #3 (Hold) multi-line insurer is trading above its 50-day and 200-day simple moving average (SMA) of $34.82 and $31.82, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

RDN’s Return on Capital

Return on invested capital in the trailing 12 months was 10.3%, better than the industry average of 3.3%, reflecting RDN’s efficiency in utilizing funds to generate income.

Factors Acting in Favor of RDN

The insurer has intensified its focus on the core business and services with higher growth potential, ensuring a predictable and recurring fee-based revenue stream.

New business, combined with increasing annual persistency, should drive continued growth of the insurance-in-force portfolio. Radian’s mortgage insurance portfolio creates a strong foundation for future earnings.

Radian Group has been witnessing a declining pattern of claim filings. Thus, we expect paid claims to decrease further. A decline in loss and claims will strengthen the balance sheet and hence improve its financial profile.

Radian Group expects that the private mortgage insurance market will be approximately $300 billion in 2024, consistent with the prior year. It expects a healthy purchase market in 2024, driven by ongoing homebuyer demand and an expected decline in interest rates, which is a positive for mortgage insurers. The company believes that the resulting pent-up demand provides strong support for future purchase volume, which drives the growth in large and valuable insurance in-force portfolio.

The multi-line insurer has been strengthening its capital position with capital contribution, reinsurance transactions and cash position. This, in turn, aids the insurer to engage in wealth distribution. 

The 9% increase in quarterly dividend in the first quarter of 2024 marks the fifth consecutive year in which RDN has increased the quarterly dividend, with a total increase of 96% over the past four years. Its current dividend yield of 2.7% betters the industry average of 2.2%, making it an attractive pick for yield-seeking investors.

RDN Shares are Undervalued

Radian Group shares are trading at a price-to-book multiple of 1.19, lower than the industry average of 2.77.

Key Picks

Investors interested in the multi-line insurance industry may look at some better-ranked players like EverQuote, Inc. EVER, MGIC Investment Corporation MTG and Horace Mann Educators Corporation HMN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for EverQuote’s 2024 and 2025 earnings implies year-over-year growth of 137% and 45.9%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 144.90%. Year to date, shares of EVER have gained 64.8%.

The Zacks Consensus Estimate for MGIC Investment’s 2024 earnings implies year-over-year growth of 9%. It beat earnings estimates in each of the past four quarters, with an average surprise of 15.59%. Year to date, shares of MTG have gained 35.6%.

The Zacks Consensus Estimate for Horace Mann’s 2024 and 2025 earnings implies year-over-year growth of 71.4% and 37.8%, respectively. It beat earnings estimates in three of the past four quarters and missed in one, with an average surprise of 10.12%. Year to date, shares of HMN have gained 12.2%.

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MGIC Investment Corporation (MTG): Free Stock Analysis Report
 
Radian Group Inc. (RDN): Free Stock Analysis Report
 
EverQuote, Inc. (EVER): Free Stock Analysis Report
 
Horace Mann Educators Corporation (HMN): Free Stock Analysis Report

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