A month has gone by since the last earnings report for MGIC Investment (MTG). Shares have added about 12.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MGIC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
MGIC Investment Q4 Earnings Beat, Revenues Up Y/Y
MGIC Investment reported fourth-quarter 2018 operating net income per share of 42 cents, beating the Zacks Consensus Estimate by 13.5%. However, the bottom line declined 2.3% year over year.
The quarter witnessed favorable operating environment including better employment, wage growth, higher housing demand and lower credit losses of recently written business.
MGIC Investment recorded total operating revenues of $285.9 million, increasing 5.5% year over year on higher net investment income (up 19.7%) and higher premiums earned (up 3.5%).
Net premiums earned increased on higher average insurance in force and a decrease in ceded premiums during the quarter, partially offset by the effect of lower premium rates.
Net investment income increased on higher yields.
New insurance written was $14.2 billion, down 4.7% year over year.
Net underwriting and other expenses totaled $50 million, up 14.2% year over year attributable to higher compensation and other expenses. Total loss and expenses increased more than threefold on higher losses incurred and increase in underwriting and other expenses.
Loss ratio was 11.3% in the quarter under review compared with (13.1%) a year ago. Underwriting expense ratio of 19.1% deteriorated 32 basis points (bps) year over year.
Full Year Highlights
MGIC Investment earned $1.78 per share in 2018, up 30.9% on 5.6% higher operating revenues of $1.1 billion.
As of Dec 31, 2018, insurance in force was $209.7 billion, up 7.6% year over year on higher new insurance written and higher annual persistency.
Persistency or the percentage of insurance remaining in force from the preceding year was 81.7% as of Dec 31, 2018, expanding 160 bps year over year.
Primary delinquent inventory declined 29.3% year over year to 32,898 loans as of Dec 31, 2018
Book value per share, a measure of net worth, grew nearly 4.6% year over year to $10.08 as of Dec 31, 2018.
MGIC Investment had $151.9 million in cash and investments, up 52.1% year over year.
Risk-to-capital ratio was 9.8:1 as of Dec 31, 2018 compared with 10.5:1 as of Dec 31, 2017.
Debt to total capital ratio was 19% at the end of the quarter, improving 100 bps from the third quarter of 2018.
The company spent $75.2 million to buy back 6.8 million shares in the fourth quarter of 2018, taking full year buyback to 16 million shares for $175 million. The company had $5 million remaining under its authorization.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 5.56% due to these changes.
Currently, MGIC has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
MGIC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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