Radian Is the Whole Package: Is It Safe?

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PHILADELPHIA (TheStreet) -- Mortgage-guarantee insurer Radian(RDN Quote) surprised investors by posting net income of $232 million in the second quarter. Analysts had expected a loss.

The profit was attributed to so-called loss management and unrealized gains on derivatives, the area of speculation that some analysts blame entirely for the fall of American International Group(AIG Quote), once the largest U.S. insurer. Still, Radian's potential risks and gains remain a mystery to investors.

The pressure is on for mortgage insurers such as Genworth Financial(GNW Quote), MGIC Investment(MTG Quote), Old Republic International(ORI Quote) and PMI Group(PMI Quote). There has been a decline in mortgage-guarantee insurance for every month from January through June, SNL Financial reported. Delinquencies are rising.

The better-than-expected performance by Radian may reflect an overly pessimistic projection for defaults and recoveries, as opposed to outperformance.

Claims estimates for the rest of the year improved to $1.1 billion, down from $1.2 billion to $1.4 billion. That led analysts to revise the 2009 loss and increase next year's projected profit.

Radian's stock has rocketed, nearly tripling in the past month. Unlike most insurers, Radian was hit well before last fall. Its stock dropped off a cliff in July 2007 from a high of $65. The stock tracked the crash last year, but didn't suffer additional punishment.

Interest in the stock continues to be strong. Last week's volume jumped 50%. Coupled with a short interest ratio of 0.84, that could mean the higher price might be sustainable. But a sky-high beta of 1.97 suggests massive volatility. TheStreet.com Ratings has the stock as a "sell" recommendation.