Shares of MGIC Investment CorporationMTG gained 6.32% since Jan 19 when the insurer the reported better than expected fourth-quarter 2016 earnings. It significantly outperformed the Multi line industry's growth of 2.55%. The company also witnessed full-year 2017 estimates moving north by 4.2% in the past 60 days. We expect the company to retain its momentum on the back of a number of positives.
The company remains committed toward growing its insurance in force. New insurance of $48 billion in 2016 was driven by larger origination volume as well as an increase in the private mortgage insurance industry's market share. Given the FHA premium cut, the company estimates 5-10% lower new business written in 2017. Nonetheless, the new business and the expected increase in persistency are anticipated to grow insurance in force moderately in 2017.
MGIC Investment experienced a substantial decline of 19% in paid claims in 2016 and expects further decrease in the metric owing to lesser claim filings. A decline in loss and claims will strengthen the company's balance sheet and hence, improve its financial profile.
Further, the company anticipates the number of new mortgage delinquency notices as well as delinquency inventory to continue declining. Also, the company is well positioned to provide credit enhancement and low down payment solutions to lenders, Government-Sponsored Enterprises (GSEs) and borrowers, both now and in the future.
The Zacks Rank #1 (Strong Buy) multi line insurer's improving private mortgage market share continues to boost its insurance in force, which in turn, should drive the future revenues. MGIC Investment expects to gain 19-20% market share in the industry it operates. It currently has 18% market share.
In addition, a strong capital position will allow the company to repurchase some of its convertible debt. This will lower interest burden on the insurer and facilitate margin expansion.
Notably, MGIC Investment carries a VGM score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. In fact, valuation at the current level is attractive as the stock is trading at a forward P/E ratio of 11.3, a 4.2% discount to the industry average of 11.8. Further, MGIC Investment has a trailing 12-month return on equity (ROE) of 16.0%, which is higher than the industry average of 5.2%.
Stocks to Consider
Investors interested in other stocks from the same space can consider The Hartford Financial Services Group, Inc. HIG , Kemper Corporation KMPR and James River Group Holdings, Ltd. JRVR . Each of these stocks holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
The Hartford Financial offers insurance and financial services to individual and business customers in the U.S. The company delivered positive surprises in two of the last four quarters but with an average negative surprise of 10.86%.
Kemper Corporation is a diversified insurance holding company that offers property and casualty as well as life and health insurance to individuals and businesses in the U.S. The company delivered positive surprises in two of the last four quarters but with an average negative surprise of 18.04%.
James River Group offers specialty insurance and reinsurance services in the U.S. The company delivered positive surprises in three of the last four quarters with an average beat of 3.60%.
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