Radian Group Inc (RDN) Stock Analysis and Metrics

Sector: Financial Services Industry: Insurance - Specialty CIK: 0000890926

Market Cap 5.23 Bn

P/B 1.12

P/E 9.08

P/S 4.17

ROIC (Qtr) 9.41

Div Yield % 3.45

Rev 1y % (Qtr) -3.25

Total Debt (Qtr) 1.13 Bn

Debt/Equity (Qtr) 0.24

About

Radian Group Inc., often referred to as Radian, is a prominent player in the mortgage and real estate services industry within the United States. The company operates through two primary segments: Mortgage Insurance and homegenius. Radian's Mortgage Insurance segment specializes in managing and distributing U.S. mortgage credit risk, offering private mortgage insurance for first-lien mortgage loans and other credit risk management solutions. These solutions include contract underwriting, all designed to protect lenders and investors from mortgage...

Radian Group Inc., often referred to as Radian, is a prominent player in the mortgage and real estate services industry within the United States. The company operates through two primary segments: Mortgage Insurance and homegenius.

Radian's Mortgage Insurance segment specializes in managing and distributing U.S. mortgage credit risk, offering private mortgage insurance for first-lien mortgage loans and other credit risk management solutions. These solutions include contract underwriting, all designed to protect lenders and investors from mortgage default-related losses. The company's mortgage insurance products are tailored to meet the needs of various stakeholders, including mortgage lending institutions and mortgage credit investors.

Radian offers a range of mortgage insurance products, headlined by Primary Mortgage Insurance, GSE Credit Risk Transfer, and Pool Mortgage Insurance. Primary Mortgage Insurance, the most common form of mortgage insurance, provides coverage against mortgage defaults at a specified percentage. GSE Credit Risk Transfer is a program that shifts additional credit risk on an excess-of-loss basis to insurance and reinsurance providers for pools of mortgage loans. Pool Mortgage Insurance insures a pool of mortgage loans instead of individual loans.

Radian's mortgage insurance premiums are calculated using performance models that account for a broad spectrum of borrower, loan, and property characteristics, as well as current and projected market and economic conditions. These premiums are subject to regulation and are filed with state insurance regulatory authorities.

Radian's homegenius segment provides a variety of title, real estate, and real estate technology products and services to a diverse clientele. This includes consumers, mortgage lenders, mortgage and real estate investors, government-sponsored entities (GSEs), real estate brokers and agents, and corporations for their employees. The homegenius segment offers solutions for various real estate needs, such as title insurance, escrow services, and real estate data and analytics.

Radian's competitive edge stems from its strong brand recognition, extensive industry knowledge, and its capacity to leverage data and analytics in its decision-making processes. The company's mortgage insurance products are highly esteemed in the industry, and its homegenius segment delivers a host of innovative solutions for the real estate industry.

Radian's customer base includes some of the largest mortgage lenders and servicers in the U.S., as well as GSEs such as Fannie Mae and Freddie Mac. The company's offerings cater to a wide range of customers, including consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents, and corporations.

Radian's brand names and trade names encompass its Mortgage Insurance and homegenius segments. These include Radian Mortgage Insurance, Radian Guaranty, Radian Private Mortgage Insurance, Radian Asset Assurance, Radian Servicing, and homegenius.

Radian's mortgage insurance portfolio is diversified by loan type, with a blend of fixed-rate and adjustable-rate loans, as well as government-backed and private-label loans. The company's portfolio is further diversified by loan size, with a mix of small, medium, and large loans. This diversification helps mitigate the risk of concentration and provides a more stable and diversified revenue stream.

Radian's homegenius segment is contingent on the overall activity in the mortgage finance and real estate markets, as well as the overall health of the related industries. Revenues for this segment can fluctuate due to seasonal volume fluctuations, the number of competing companies, and alternative products offered in the market.

Radian faces intense competition in both its mortgage insurance and homegenius segments. In the mortgage insurance market, the company competes with other private mortgage insurers, as well as the FHA and VA. In the homegenius segment, Radian competes with companies offering similar products and services.

Radian's investment portfolio is managed to maximize long-term expected returns while maintaining an acceptable risk level. The company's investment objectives are to utilize appropriate risk management oversight to optimize after-tax returns, while preserving capital. Radian's investment policies and strategies are subject to change, depending on business needs, current and potential future regulatory requirements, economic and market conditions, and the company's then-existing or anticipated financial condition and operating requirements.

Radian's risk appetite is driven by its business strategy, which is established by executive management and overseen by the board of directors. The company defines its risk appetite qualitatively through the following key risk categories: credit, financial, strategic, operational, and regulatory.

Price action

Investment thesis

Bull case

Strong tangible asset base of 8.20B provides 7.28x coverage of total debt 1.13B, indicating robust asset backing and low credit risk.
Tangible assets of 8.20B provide exceptional 49.38x coverage of deferred revenue 166.16M, showing strong service capability backing.
Free cash flow of (560.23M) provides excellent 3.80x coverage of dividends (147.48M), indicating sustainable shareholder returns.
Retained earnings of 5.01B represent substantial 1.08x of equity 4.65B, indicating strong internal capital generation.
Tangible assets of 8.20B provide robust 63.72x coverage of receivables 128.76M, showing strong asset quality.

Bear case

Operating cash flow of (556.55M) barely covers its investment activities of 239.92M, with a coverage ratio of -2.32, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
Operating cash flow of (556.55M) provides insufficient coverage of deferred revenue obligations of 166.16M, which is -3.35x, raising concerns about future service delivery capabilities.
Free cash flow of (560.23M) provides weak coverage of capital expenditures of 3.68M, with a -152.32 ratio suggesting additional external financing needs for growth initiatives.
Operating cash flow of (556.55M) provides minimal -3.40x coverage of tax expenses of 163.83M, suggesting potential tax planning inefficiencies or unsustainable tax positions.
Free cash flow of (560.23M) represents just -1.53x of debt issuance 365.30M, suggesting concerning reliance on leverage rather than internal cash generation for growth.

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	1.02	0.71
EV to Cash from Ops. EV/CFO	-15.10	14.19
EV to Debt EV to Debt	7.45	23.24
EV to EBIT EV/EBIT	10.15	18.43
EV to EBITDA EV/EBITDA	9.25	16.13
EV to Free Cash Flow [EV/FCF] EV/FCF	-15.00	16.11
EV to Market Cap EV to Market Cap	1.61	1.73
EV to Revenue EV/Rev	6.69	5.55
Price to Book Value [P/B] P/B	1.13	1.80
Price to Earnings [P/E] P/E	9.09	15.04

Dividend Metrics	Value	Ind Avg
Dividend Coverage Ratio Div Coverage (Qtr)	3.91	2.59
Dividend Payout Ratio % Div Payout % (Qtr)	25.10	38.44
Dividend per Basic Share Div per Share (Qtr)	1.02	2.02
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr)	-24.82	72.23
Interest Coverage Int. cover (Qtr)	9.40	24.83

Growth Metrics	Value	Ind Avg
Capex Growth (1y) % Capex 1y % (Qtr)	-12.24	-23.94
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr)	-49.23	-13.37
Dividend Growth (1y) % Div 1y % (Qtr)	5.18	6.74
EBIAT Growth (1y) % EBIAT 1y % (Qtr)	-4.91	22.43
EBITDA Growth (1y) % EBITDA 1y % (Qtr)	-6.71	10.45
EBIT Growth (1y) % EBIT 1y % (Qtr)	-4.54	35.06
EBT Growth (1y) % EBT 1y % (Qtr)	-3.43	50.45
EPS Growth (1y) % EPS 1y % (Qtr)	3.86	37.38
FCF Growth (1y) % FCF 1y % (Qtr)	-322.89	-3.02
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr)	-2.13	11.39

Liquidity Ratios	Value	Ind Avg
Asset Utilization Ratio Asset Util Ratio (Qtr)	0.15	0.23
Cash Payout Ratio Cash Payout (Qtr)	-0.27	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)	0.24	0.51
Interest Cover Ratio Int Coverage (Qtr)	9.40	24.83
Times Interest Earned Times Interest Earned (Qtr)	9.40	24.83

Profitability	Value	Ind Avg
EBITDA Margin % EBITDA Margin % (Qtr)	71.50	36.49
EBIT Margin % EBIT Margin % (Qtr)	65.97	34.57
EBT Margin % EBT Margin % (Qtr)	58.95	17.61
Gross Margin % Gross Margin % (Qtr)	97.80	74.55
Net Profit Margin % Net Margin % (Qtr)	45.90	10.79

Radian Group Inc (NYSE: RDN)

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