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MGIC Investment (MTG) Lags Q1 Earnings: Stock to Suffer?

MGIC Investment Corporation MTG reported first-quarter 2016 adjusted net income per share of 19 cents, which missed the Zacks Consensus Estimate of 23 cents by 17.4%.  

Net income plunged 46.8% year on year from 32 cents per share due to a decline in net realized investment gains and higher losses.

Currently, the stock is trading at $7.11. We expect the release to lead to stock movement.

Operational Update

MGIC Investment’s total operating revenue of $256 million improved 4.9% year over year on higher premiums earned, investment income and other income. The top line however missed Zacks Consensus Estimate by 1.2%.

New insurance written was $8.3 billion in the reported quarter, down 7.7% from $9 billion in first-quarter 2015.

As of Mar 31, 2016, the company’s primary insurance in force was $175 billion, up by 5.4% year on year, and covered approximately one million mortgages.

Persistency, or the percentage of insurance remaining in force from the year before, was 79.9% as of Mar 31, 2016 compared with 81.6% as of Mar 31, 2015.

Percentage of delinquent loans including bulk loans was 5.6% on Mar 31, 2016 against 7.4% on Mar 31, 2015.

Primary delinquent inventory declined 21.6% year over year to $55.6 billion.

Net underwriting and other expenses totaled $41.7 million, up 1.7% year over year.

Losses in the quarter widened 3.9%  to $85 million. A $22 million reduction in losses in first quarter of 2015 was due to positive development on the company’s primary loss reserve. This amount reduced to $5 million in the first quarter of 2016 thus reducing overall margins. Total losses and expenses increased 15.8% year over year to $154.9 million. This was partially offset by a 15.3% year-over-year decline in interest expenses to $14.7 million.

Financial Update

Book value per share, a measure of net worth, more than doubled year over year to $6.88 as of Mar 31, 2016 from $3.49 as of Mar 31, 2015.

As of Mar 31, 2016, MGIC Investment had approximately $4.6 billion in cash and investments, flat year over year.

In the first quarter, the company repurchased $138.3 million 5% convertible senior notes, due 2017, for $143.4 million plus accrued interest.  MGIC Investment also bought $132.7 million par value of its 9% convertible junior debentures, due 2063, for $150.7 million plus accrued interest.  

Zacks Rank and Stocks to Consider

MGIC Investment presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the multiline insurance industry are AXAHY, Metlife Inc. MET and Swiss Reinsurance Company SSREY. While AXA Group sports a Zacks Rank #1 (Strong Buy), both MetLifeand Swiss Reinsurance hold a Zacks Rank #2 (Buy).

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METLIFE INC (MET): Free Stock Analysis Report
 
MGIC INVSTMT CP (MTG): Free Stock Analysis Report
 
AXA SA -SP ADR (AXAHY): Free Stock Analysis Report
 
SWISS RE LTD (SSREY): Free Stock Analysis Report
 
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