Reasons why MGIC Investment (MTG) stock is a solid choice now

MGIC investment company MTG has grown on the back of higher volumes of new insurance written, fewer overdue notices and a strong capital position.

Northbound estimate revision

The stock has seen its estimates for 2022 and 2023 rise nearly 8.6% and 2.3%, respectively, over the past 30 days, reflecting investor optimism.

Earnings Surprise History

MGIC Investment has a decent surprise history, beating earnings estimates in five of the last seven reported quarters and hitting the same twice.

Return on equity

MTG’s return on equity for the last 12 months is 14.6%, better than the industry average of 9.3%. It was up 460 basis points (bps) year-over-year. This reflects efficiency in the use of shareholder funds.

Zacks Ranking and Price Performance

MGIC Investment currently carries a Zacks rank #2 (buy). Over the past year, the stock has lost 6.6% compared to the industry’s 14% decline.

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Business winds

The increase in the persistence rate as well as the increase in the volumes of new insurance written should stimulate insurance in force. MTG expects the in-force insurance portfolio to continue to grow in 2022.

Net premiums written by MGIC Investment are expected to benefit from higher insurance in force, lower premiums ceded under quota share reinsurance transactions as well as higher premium yields.

Given a lower level of new non-payment notices, the credit performance of insurance in force should improve. MTG continues to benefit from the current trading environment, the quality of new trading rights and the low level of new overdue notices, which continued through April.

With higher investment returns and a shrinking investment portfolio, net investment income is expected to improve.

Thanks to fewer late notices, reflecting the high quality of insurance in force, and a favorable development of claims reserves which indicates better than expected recovery rates, the loss ratio should improve.

The Zacks consensus estimate for MGIC Investment’s earnings per share in 2022 is pegged at $2.27, indicating 18.8% year-over-year growth.

Solid balance sheet

At the end of the first quarter, the capital of MGIC Investment exceeded the target level, which was reinforced by the ILN transaction which was finalized in April. The insurer’s balanced approach to maintaining a strong capital position provides the flexibility needed to maximize the long-term value of both the issuer and the holding company.

MTG expects to approach a longer-term debt ratio between the low and mid-teens. At the end of the quarter, the holding company had $409 million in cash. MGIC Investment has built a solid capital base to increase long-term shareholder value while maintaining financial strength and flexibility.

Capital deployment

As of March 31, 2022, MGIC Investment had $372 million remaining under a share repurchase program approved by its board of directors in 2021. In April 2022, MTG repurchased additional shares for 39.7 million under the remaining authorization which expires at the end of 2023.

Other actions to consider

Some other top ranked stocks in the insurance industry are WR Berkley Corporation WRB, RLI Corp.. RLI and HCI Group, Inc. HCI, each sporting a Zacks rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Earnings for WR Berkley have exceeded estimates in each of the past four quarters, with the average earnings surprise being 27.08%. Over the past year, shares of WR Berkley have risen 36.2%.

The Zacks consensus estimate for WRB revenue in 2022 and 2023 has moved 6.3% and 6.2% north, respectively, over the past 60 days.

RLI has a strong track record of beating earnings estimates in each of the past seven quarters. Over the past year, RLI stock has risen 13.9%.

The Zacks consensus estimate for RLI’s earnings per share in 2022 and 2023 is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2. 3%, respectively.

The Zacks consensus estimate for 2022 and 2023 earnings for HCI Group has moved 33.3% and 40% north, respectively, over the past 30 days. Over the past year, HCI Group shares have lost 14.3%.

The Zacks consensus estimate for 2022 and 2023 earnings per share points to year-over-year increases of 280.9% and 75%, respectively.

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HCI Group, Inc. (HCI): Free Stock Analysis Report

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