Radian Group (NYSE:RDN) has seen its shares rise by 40% year-to-date, significantly outperforming the industry’s 5.5% decline. The finance sector has experienced a 2.2% increase with its 14.6% gain during the same period. Radian Group has a market capitalization of $4.2 billion, with an average trading volume of 1.1 million shares over the last three months.
Several factors contribute to Radian Group’s strong performance, including an improving mortgage insurance portfolio, declining claims, a well-performing home genius segment, a solid capital position, and effective capital deployment.
Over the past five years, Radian Group’s earnings have increased by 19%, surpassing the industry average of 5.4%. The company is expected to achieve long-term earnings growth of 5%. Furthermore, Radian has a solid track record of exceeding earnings estimates in each of the last seven reported quarters.
The company’s return on equity for the trailing 12 months stands at 17.3%, a favorable comparison with the industry’s 10.5%. This demonstrates Radian Group’s efficiency in utilizing shareholders’ funds.
Looking ahead, Radian Group’s earnings are expected to continue growing, supported by its mortgage insurance portfolio. The primary mortgage insurance in force is likely to benefit from increased single premium policy insurance and higher monthly premium policy insurance. Radian anticipates the private mortgage insurance market to be around $325 billion in 2023 based on a total mortgage origination market of $1.7 trillion.
Radian’s persistency rate is also expected to improve as refinancing activity declines due to higher mortgage interest rates. The company’s business restructuring is focused on core services with higher growth potential, ensuring a predictable and recurring fee-based revenue stream.
In addition, Radian has been experiencing a decline in claims over recent years, which is likely to continue given the strong credit characteristics of the new insured loans. This trend favors profitability.
However, the company’s homegenius title and real estate businesses have been impacted by a decrease in industry-wide mortgage and real estate transaction volume, inflationary pressures, and a higher interest rate environment. Nonetheless, Radian remains optimistic about managing the homegenius business through this challenging environment through disciplined cost management.
Radian Group maintains a solid balance sheet with sufficient liquidity and strong cash flows. This provides a foundation for effective capital deployment. RDN has raised dividends for four consecutive years and offers the highest dividend yield in the private mortgage insurance industry. With $280 million remaining under its buyback authorization, the company demonstrates its commitment to returning value to shareholders.
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