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MGIC Investment (MTG) Lags Q1 Earnings: Stock to Suffer?

MGIC Investment CorporationMTG reported first-quarter 2016 adjusted net income per share of 19 cents, which missed the Zacks Consensus Estimate of 23 cents by 17.4%.

Net income plunged 46.8% year on year from 32 cents per share due to a decline in net realized investment gains and higher losses.

Currently, the stock is trading at $7.11. We expect the release to lead to stock movement.

Operational Update

MGIC Investment's total operating revenue of $256 million improved 4.9% year over year on higher premiums earned, investment income and other income. The top line however missed Zacks Consensus Estimate by 1.2%.

New insurance written was $8.3 billion in the reported quarter, down 7.7% from $9 billion in first-quarter 2015.

As of Mar 31, 2016, the company's primary insurance in force was $175 billion, up by 5.4% year on year, and covered approximately one million mortgages.

Persistency, or the percentage of insurance remaining in force from the year before, was 79.9% as of Mar 31, 2016 compared with 81.6% as of Mar 31, 2015.

Percentage of delinquent loans including bulk loans was 5.6% on Mar 31, 2016 against 7.4% on Mar 31, 2015.

Primary delinquent inventory declined 21.6% year over year to $55.6 billion.

Net underwriting and other expenses totaled $41.7 million, up 1.7% year over year.

Losses in the quarter widened 3.9% to $85 million. A $22 million reduction in losses in first quarter of 2015 was due to positive development on the company's primary loss reserve. This amount reduced to $5 million in the first quarter of 2016 thus reducing overall margins. Total losses and expenses increased 15.8% year over year to $154.9 million. This was partially offset by a 15.3% year-over-year decline in interest expenses to $14.7 million.

Financial Update

Book value per share, a measure of net worth, more than doubled year over year to $6.88 as of Mar 31, 2016 from $3.49 as of Mar 31, 2015.

As of Mar 31, 2016, MGIC Investment had approximately $4.6 billion in cash and investments, flat year over year.

In the first quarter, the company repurchased $138.3 million 5% convertible senior notes, due 2017, for $143.4 million plus accrued interest. MGIC Investment also bought $132.7 million par value of its 9% convertible junior debentures, due 2063, for $150.7 million plus accrued interest.

Zacks Rank and Stocks to Consider

MGIC Investment presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the multiline insurance industry are AXAHY , Metlife Inc. MET and Swiss Reinsurance Company SSREY . While AXA Group sports a Zacks Rank #1 (Strong Buy), both MetLifeand Swiss Reinsurance hold a Zacks Rank #2 (Buy).

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METLIFE INC (MET): Free Stock Analysis Report

MGIC INVSTMT CP (MTG): Free Stock Analysis Report

AXA SA -SP ADR (AXAHY): Free Stock Analysis Report

SWISS RE LTD (SSREY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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