Radian's Quarter Radiates
Remember, the shares faltered a quarter ago after disappointing results and I have considered Radian a "show me" stock.
It showed me (and hopefully other investors) this morning!
Importantly, the company achieved a record level of new insurance written in June. Quarterly net insurance written rose by +11% and insurance in force advanced by over 8% (year over year). (Net insurance written was estimated by management at $50 billion for 2017.)
Even more important was the good credit experience -- delinquencies dropped by 8% from the first quarter and, on a year-over-year basis, declined by 20%. This is a function, in part, of the fact that over 90% of the company's insurance in force is new business that was written under more stringent underwriting standards after the Great Recession in 2007-08. The loss ratio fell to under 8% from 21% in the first quarter of 2017 and 22% in the second quarter of 2016.
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Radian "kitchen-sinked" the services business (which was acquired from Clayton Holdings about three years ago) after a lengthy strategic review. I suspect that decision (to make the goodwill impairment charge) is masking the strong recurring results, which would have had a more salutary impact on the share price this morning.
I am raising my 2017 EPS from $1.66E to $1.76E and my 2018 EPS forecast from $1.90E to $1.95E.
Radian shares are trading at only 1.3 times book and about 9 times next year's profit forecast. Historically, RDN has traded at more than 2 times book (before the financial crisis) and as recently as two years ago sold at 1.75 times book value.
Radian will be a beneficiary of slightly higher interest rates as persistency (longer average lives of policies) will increase. (Persistency rose from 77% in the first quarter compared to 78.5% in the recently completed quarter.)
My year-end 2017 price target is $20 and for 2018 year end $24-$25. (Should the administration issue pro-private mortgage insurance industry policy, those targets could prove conservative.)
Radian remains on my Best Ideas List (it was added at $10 about 12 months ago) and is trading up small at $17.63.
I am adding to this medium-sized position today.
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Originally published Aug. 1 at 11:06 a.m. EST
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