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Why Is MGIC (MTG) Up 31.4% Since Last Earnings Report?

It has been about a month since the last earnings report for MGIC Investment (MTG). Shares have added about 31.4% 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 drivers.

MGIC Investment's Q1 Earnings Beat, Revenues Miss

MGIC Investment reported first-quarter 2020 operating net income per share of 42 cents, which beat the Zacks Consensus Estimate by 10.5% but were flat year over year.

The quarter witnessed favorable economic and housing environment. Credit losses remained low.

Operational Update

Insurance in force increased 7% to $225.5 billion, despite lower persistency, leading to a strong capital position.

The company witnessed 11% decline in primary delinquency to 27,384 loans.

MGIC Investment recorded total operating revenues of $305 million, which increased 4.4% year over year on higher net investment income (up 1.7%) and net premiums earned (up 4.4%). Revenues missed the Zacks Consensus Estimate by 1.9%

The increase in net premiums earned was due to higher average insurance in force and a rise in premiums from single premium policy cancellations, partially offset by the effect of lower premium rates.

Net investment income improved from an increase in the consolidated investment portfolio.

Persistency, the percentage of insurance remaining in force from one year prior, was 73% as of Mar 31, 2020, down 870 basis points (bps) year over year.

New insurance written was $17.1 billion, up 77.2% year over year.

Net underwriting and other expenses totaled $44.8 million, down 7.4% year over year.

In the quarter under review, loss ratio was 23.4%, which deteriorated 780 basis points year over year.

Financial Update

Book value per share, a measure of net worth, grew about 1% to $12.53 as of Mar 31, 2020 from 2019 end.

MGIC Investment had $563 million in cash, cash equivalents and investments, up 73.2% year over year.

Total assets were $6.2 billion, flat with 2019-end level.

Capital Deployment

MGIC paid out dividends of $390 million to its holding company during the first quarter of 2020 while MGIC Investment Corporation paid $0.06 dividend per common share to shareholders during the first quarter of 2020

The company bought back 9.6 million shares for about $120 million in the first quarter. However, the company has temporarily suspended buybacks.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -68.42% due to these changes.

VGM Scores

Currently, MGIC has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MGIC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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