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Zack’s Bull of the Day: Radian

Headquartered in Philadelphia, Radian Group (NYSE: RDN) provides private mortgage insurance, risk-management products and real estate services to financial institutions.
The company has three business segments: 1) Mortgage Insurance, 2) Financial Guaranty and 3) Mortgage and Real Estate Services.
Excellent Third Quarter Results and Rising Estimates

Radian reported its Q3 2014 results on November 7. Net income for the quarter was $0.72 per share, compared with a net loss of $0.10 per share in the year-ago quarter. The results were significantly ahead of the Zacks Consensus Estimate of $0.32 per share.
Total revenue came in at $309.2 million, up 24.6% year over year. The increase was led by higher premium earned and service revenues. New mortgage insurance written (NIW) was $11.2 billion, down 18.2% year over year. Though NIW declined, the quality of loans insured had excellent risk characteristics.
Total primary mortgage insurance in force was $169.2 billion as of the end of the third quarter, up 6.7% year over year. Persistency–the percentage of mortgage insurance in force that remains on the company’s books after a 12-month period–was 83.5%, compared to 80.5% a year ago.
Total mortgage insurance claims paid were $173.9 million, down 66% year over year. The company expects 2014 claims paid between $900 million and $1 billion and claims paid in 2015 to be down materially from 2014.
On June 30, 2014, Radian had completed the acquisition of Clayton Holdings LLC, the results of which were included in Mortgage and Real Estate Services segment. The acquisition helps Radian diversify its revenue stream.
Thanks to excellent results, analysts have revised their estimates for the company. Zacks Consensus Estimates for 2014 is currently $2.75 per share up from $2.64 per share 30 days ago.

Radian has beat or met estimates in all of the last four quarters, with an average positive surprise of 65.5%. Further with a positive Earnings ESP (Expected Surprise Prediction) of 13.5%, Radian looks poised to beat the estimates for the next quarter as well.

Moody’s Places Radian on Review for Upgrade

On December 22, Radian announced that it had entered into an agreement to sell Radian Asset, its financial guaranty insurance subsidiary, to Assured Guaranty Corp for approximately $810 million. The transaction is expected to close in the first half of 2015.

Following the announcement, Moody’s placed Radian group on a review for upgrade, as the sale increases the amount of capital readily accessible to Radian Guaranty, and will strengthen its capital adequacy. Further, the completion of the transaction will help Radian Guaranty comply with capital requirements and would strengthen its credit profile.

The Bottom Line
With improvement in the quality and size of its mortgage insurance portfolio and recent growth and diversification initiatives, Radian looks well positioned to deliver strong results in the coming quarter. 

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