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) -- Mortgage-guarantee insurer
Russell Rebalancing Triggers Volume Wave; Jim Cramer Sees Opportunity
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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
, 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
Old Republic International
( PMI). There has been a decline in mortgage-guarantee insurance for every month from January through June,
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.
Radian is still attractively priced on a price-to-book basis (about 30%). The price-to-earnings ratio is in the gutter (0.7).
There are only eight other insurers with higher stock prices over 12 months, year to date, three months and one week. Each has its own strengths.
have low P/E ratios.
Allied World Assurance
Endurance Specialty Holdings
boast attractive price-to-book ratios. But only Radian has the entire package.
There's a downside. SNL Financial reports that analysts' consensus price target for the year is $6.10. The stock is now well above $7. But there's no evidence to support that Radian is overpriced. The company continues to give off positive vibes, including its decision to repay $100 million of a borrowing facility due in 2011.
-- Reported by Gavin Magor in Jupiter, Fla
Gavin Magor joined TheStreet.com Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.