MGIC Investment Corporation (MTG – Free Report) has gained momentum for higher insurance in force, higher direct premium yield, increased annual sustainability and a strong capital position.
Review of Northbound Assessment
Estimates for 2022 and 2023 have increased by 11.6% and 1.3%, respectively, in the last 60 days, reflecting investor optimism.
The earnings surprise story
MGIC Investment has a good track record of surprises, beating earnings estimates in five of the last seven quarters and hitting the same twice.
Return on capital
MTG’s trailing 12-month return on equity is 17%, better than the industry average of 7.7%. It widened by 430 basis points year over year. This reflects the efficiency in the use of shareholders’ funds.
Zacks Rank & Price Performance
MGIC Investment currently carries a Zacks Rank #2 (Buy). Year-to-date, the stock has gained 0.3% versus the industry’s decline of 4.3%.
Image source: Zacks Investment Research
Higher underwriting, an increase in direct premium yield, net profit commission and lower ceded premiums written are likely to drive net premiums written by the multi-line insurer.
Rewriting new business, combined with increased year-over-year consistency, is likely to boost the current insurance portfolio.
The new insurance written should benefit from an increase in the mortgage origination market.
MGIC Investment benefits from the solid credit quality of rising insurance in effect, a strong housing market, declining delinquency rates and favorable economic conditions.
Considering the higher consolidated investment portfolio and investment yields, net investment income is likely to improve.
The loss ratio is likely to improve, supported by fewer delinquency notices, reflecting the high quality of insurance in force and the favorable development of the loss reserve showing better than expected rates.
MTG boasts a solid balance sheet. Debt to equity has decreased over the past four years. The insurer’s balanced approach to maintaining a strong capital position provides sufficient flexibility to maximize its long-term value. A lower level of paid losses and higher net premium written is likely to benefit cash flow from operations.
As of June 30, 2022, MGIC Investment had $278 million remaining under its board-approved share repurchase program in 2021 that expires at the end of 2023. In July 2022, MTG repurchased additional shares for $27.9 million under the authorization remaining.
Other stocks to consider
Some other top ranked stocks from the multi-line insurance industry are Radian Group Inc. (RDN – free report), James River Group Holdings, Ltd. (JRVR – Free Report) and Old Republic International Corporation (ORI – Free report). Radian Group currently has a Zacks Rank #1 (Strong Buy), while James River Group and Old Republic International currently carry a Zacks Rank #2. You can see the full list of today’s Zacks #1 Rank stocks here.
Radian Group’s earnings beat estimates in three of the last four quarters and missed in one, the average earnings surprise being 29.51%.
The Zacks Consensus Estimate for RDN’s 2022 and 2023 earnings have moved 16.1% and 9.7% north, respectively, in the past 60 days. Year to date, the insurer has gained 0.1%.
The Zacks Consensus Estimate for James River Group’s 2022 and 2023 earnings implies 137% and 15.3% year-over-year growth, respectively.
The Zacks Consensus Estimate for JRVR’s 2022 and 2023 earnings have moved 2.6% and 4.6% north, respectively, over the past 60 days. Year to date, the insurer is down 16.1%.
Old Republic International’s earnings beat estimates in three of the last four quarters and missed in one, the average earnings surprise being 15.1%.
The Zacks Consensus Estimate for ORI’s 2022 earnings has moved 4.2% north in the past 60 days. Year to date, the insurer is down 8.7%.