Essent Group Ltd. (ESNT) Stock Analysis and Metrics

Sector: Financial Services Industry: Insurance - Specialty CIK: 0001448893

Market Cap 6.66 Bn

P/B 1.16

P/E 9.47

P/S 5.27

ROIC (Qtr) 11.50

Div Yield % 1.37

Rev 1y % (Qtr) -1.50

Total Debt (Qtr) 494.97 Mn

Debt/Equity (Qtr) 0.09

About

Essent Group Ltd., a Bermuda-based company with the ticker symbol ESNT, is a prominent player in the housing finance industry, offering private mortgage insurance, reinsurance, and risk management products. The company's primary business revolves around providing private mortgage insurance, a crucial component in the U.S. housing finance system as it offers credit protection to lenders and mortgage investors, thereby supporting a robust secondary mortgage market. Essent Group Ltd.'s main business activity involves the sale of private mortgage insurance...

Essent Group Ltd., a Bermuda-based company with the ticker symbol ESNT, is a prominent player in the housing finance industry, offering private mortgage insurance, reinsurance, and risk management products. The company's primary business revolves around providing private mortgage insurance, a crucial component in the U.S. housing finance system as it offers credit protection to lenders and mortgage investors, thereby supporting a robust secondary mortgage market.

Essent Group Ltd.'s main business activity involves the sale of private mortgage insurance to mortgage lenders and investors. The company offers two primary types of mortgage insurance: primary mortgage insurance and pool insurance. The former provides protection on individual loans at specified coverage percentages, while the latter covers the excess of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage. Essent Group Ltd. has built a strong reputation for providing mortgage insurance coverage to borrowers with lower down payment mortgages, significantly contributing to the U.S. housing finance system.

The mortgage insurance business is highly competitive, with six active private mortgage insurers operating in the market. Essent Group Ltd. competes directly with Federal and state governmental and quasi-governmental agencies that provide mortgage insurance, such as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). Additionally, the company faces competition from state-sponsored mortgage insurance funds and alternative forms of credit enhancement, such as structured finance products and derivatives. Nevertheless, Essent Group Ltd.'s strong track record, diverse portfolio, and robust risk management framework position it well in the industry.

Essent Group Ltd.'s financial position is robust, with a significant amount of private mortgage insurance in force and a strong capital base. The company's financial strength ratings from major rating agencies, including Moody's Investors Service, S&P Global Ratings, and A.M. Best Company, are A3, A-, and A (Excellent), respectively. These ratings reflect the company's strong capacity to meet its ongoing financial commitments.

In the mortgage insurance segment, Essent Group Ltd. offers primary mortgage insurance, which provides protection on individual loans at specified coverage percentages. The company's primary mortgage insurance products are designed to provide credit protection to lenders and mortgage investors, supporting a robust secondary mortgage market in the United States. In the pool insurance segment, Essent Group Ltd. offers pool insurance, which covers the excess of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage. These pool insurance products offer additional protection to lenders and mortgage investors in the event of a mortgage default.

Essent Group Ltd. operates in a highly regulated environment, subject to comprehensive, detailed regulation by Federal regulators and state insurance departments. State regulations primarily aim to protect the public and the company's insured policyholders, while Federal mortgage-related laws and regulations impact the company's business prospects and operating results.

Price action

Investment thesis

Bull case

Strong operating cash flow of 853.67M provides robust 1.72x coverage of total debt 494.96M, indicating excellent debt servicing capability and financial flexibility.
Operating cash flow of 853.67M provides exceptional 26.11x coverage of interest expenses 32.70M, showing strong debt service capability.
Strong tangible asset base of 7.27B provides 14.69x coverage of total debt 494.96M, indicating robust asset backing and low credit risk.
Operating cash flow of 853.67M provides strong 40.62x coverage of stock compensation 21.01M, indicating sustainable incentive practices.
Robust free cash flow of 846.72M exceeds capital expenditure of 6.95M by 121.92x, indicating strong organic growth funding capability.

Bear case

Operating cash flow of 853.67M barely covers its investment activities of (220.85M), with a coverage ratio of -3.87, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
Operating cash flow of 853.67M provides thin coverage of dividend payments of (121.97M) with a -7 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
Free cash flow of 846.72M represents just -947.12x of debt issuance (894000), suggesting concerning reliance on leverage rather than internal cash generation for growth.
Retained earnings of 5.13B provide limited buffer against comprehensive income items of (165.43M), which is -31.03x, indicating elevated exposure to market risks.
Operating cash flow of 853.67M is outpaced by equity issuance of (527.85M) (-1.62 ratio), indicating concerning reliance on equity markets for funding operations.

Peer comparison

Companies in the Insurance - Specialty

S.No.	Ticker	Company	Market Cap	P/E	P/S	Total Debt (Qtr)
1	FNF	Fidelity National Financial, Inc.	14.91 Bn	12.76	1.06	4.77 Bn
2	AXS	Axis Capital Holdings Ltd	8.73 Bn	8.89	1.39	1.49 Bn
3	MTG	Mgic Investment Corp	7.13 Bn	9.46	5.86	0.65 Bn
4	ESNT	Essent Group Ltd.	6.66 Bn	9.47	5.27	0.49 Bn
5	RYAN	Ryan Specialty Holdings, Inc.	6.64 Bn	96.02	2.24	3.58 Bn
6	FAF	First American Financial Corp	6.33 Bn	13.13	0.89	2.85 Bn
7	ACT	Enact Holdings, Inc.	6.06 Bn	9.19	4.95	0.74 Bn
8	RDN	Radian Group Inc	5.23 Bn	9.08	4.17	1.13 Bn

Industry comparisons

Current Valuation	Value	Ind Avg
EV to Assets EV to Assets	0.96	0.71
EV to Cash from Ops. EV/CFO	8.27	14.19
EV to Debt EV to Debt	14.26	23.24
EV to EBIT EV/EBIT	8.16	18.43
EV to EBITDA EV/EBITDA	8.11	16.13
EV to Free Cash Flow [EV/FCF] EV/FCF	8.34	16.11
EV to Market Cap EV to Market Cap	1.06	1.73
EV to Revenue EV/Rev	5.59	5.55
Price to Book Value [P/B] P/B	1.16	1.80
Price to Earnings [P/E] P/E	9.47	15.04

Dividend Metrics	Value	Ind Avg
Dividend Coverage Ratio Div Coverage (Qtr)	5.76	2.59
Dividend Payout Ratio % Div Payout % (Qtr)	12.90	38.44
Dividend per Basic Share Div per Share (Qtr)	0.90	2.02
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr)	10.35	72.23
Interest Coverage Int. cover (Qtr)	26.45	24.83

Growth Metrics	Value	Ind Avg
Capex Growth (1y) % Capex 1y % (Qtr)	15.35	-23.94
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr)	-16.37	-13.37
Dividend Growth (1y) % Div 1y % (Qtr)	-17.43	6.74
EBIAT Growth (1y) % EBIAT 1y % (Qtr)	-4.74	22.43
EBITDA Growth (1y) % EBITDA 1y % (Qtr)	-3.75	10.45
EBIT Growth (1y) % EBIT 1y % (Qtr)	-3.74	35.06
EBT Growth (1y) % EBT 1y % (Qtr)	-3.62	50.45
EPS Growth (1y) % EPS 1y % (Qtr)	-0.43	37.38
FCF Growth (1y) % FCF 1y % (Qtr)	0.55	-3.02
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr)	-3.09	11.39

Liquidity Ratios	Value	Ind Avg
Asset Utilization Ratio Asset Util Ratio (Qtr)	0.17	0.23
Cash Payout Ratio Cash Payout (Qtr)	0.14	0.51
Cash Ratio Cash Ratio	0.00	0.00
Current Ratio Current Ratio	0.00	0.06
Debt to Equity Ratio Debt/Equity (Qtr)	0.09	0.51
Interest Cover Ratio Int Coverage (Qtr)	26.45	24.83
Times Interest Earned Times Interest Earned (Qtr)	26.45	24.83

Profitability	Value	Ind Avg
EBITDA Margin % EBITDA Margin % (Qtr)	68.90	36.49
EBIT Margin % EBIT Margin % (Qtr)	68.46	34.57
EBT Margin % EBT Margin % (Qtr)	65.87	17.61
Gross Margin % Gross Margin % (Qtr)	89.40	74.55
Net Profit Margin % Net Margin % (Qtr)	55.60	10.79

Essent Group Ltd. (NYSE: ESNT)

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