This is why investing in MGIC Investment (MTG) is smart now – July 8, 2022.

MGIC Investment Corporation (MTG Free report) should continue to benefit from higher premium yields, lower levels of new delinquency notices and financial flexibility.

Forecast revision to the north

Forecasts for 2022 and 2023 have risen by nearly 1.8% and 3.2% respectively over the past 30 days, reflecting investor optimism.

A surprising profit story

MGIC Investment has a decent surprise history, beating earnings estimates in four of the last six reported quarters and meeting the same twice.

Return on capital

MTG’s trailing 12-month return on equity was 14.6%, better than the industry average of 9.2%. It increased by 460 basis points (bps) during the year. This reflects the efficiency in using shareholders’ funds.

Zacks Rank and Price Performance

MGIC Investment currently carries a Zacks Rank #2 (Buy). Over the past year, the stock has lost 6.1%, compared with the industry’s decline of 12.3%.


Image source: Zacks Investment Research

Business headwind

New business writing combined with higher annual permanence will likely increase the insurance in effect.

Higher insurance in force, lower written ceded premiums, unearned commission and higher premium income are expected to benefit MGIC Investment’s net written premium.

MTG’s operating results should reflect the impact of gains from solid credit quality, higher active insurance, a strong housing market and declining delinquency rates.

New insurance policies should benefit from the increase in the mortgage market.

Given the higher consolidated investment portfolio and return on investments, net investment income is likely to improve.

The loss ratio is likely to improve due to fewer delinquency notices, reflecting the high quality of insurance in force and the favorable development of the loss reserve, which indicates better than expected cure rates.

Given the lower level of new delinquency notices, credit scores on current insurance are likely to improve. MTG continues to benefit from the current business environment, the quality of new business rights and the low level of new default notices.

The underwriter’s balanced approach to maintaining a strong capital position provides flexibility to maximize the long-term value of both the writing company and the holding company.

MTG expects to approach a longer-term debt-to-equity ratio in the low to mid-teens. MGIC Investment has built a solid capital base to increase long-term shareholder value while maintaining financial strength and flexibility.

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

Other stocks to consider

Some other top rated stocks from the multiline insurance industry are James River Group Holdings, Ltd. (JRVR Free report), Zurich Insurance Group Ltd. (SNAP Free report) and Axis Capital Holdings Limited (AXS Free report). While James River Group has a Zacks Rank #1 (Strong Buy), Zurich Insurance and Axis Capital carry a Zacks Rank #2. You can see the full list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for James River Group’s 2022 and 2023 earnings suggests 136% and 13.1% year-over-year growth, respectively.

The Zacks Consensus Estimate for JRVR’s 2022 and 2023 earnings have moved 15.1% and 4.9% north, respectively, over the past 60 days. Over the past year, the insurer has become cheaper by 33.8%.

The Zacks Consensus Estimate for Zurich Insurance’s 2022 and 2023 earnings has risen north of 3% and 5.1%, respectively, over the past 60 days. Over the past year, ZURVY shares are up 6.7%.

The Zacks Consensus Estimate for Zurich Insurance’s 2022 and 2023 earnings suggests 7.5% and 9.6% YoY growth, respectively.

Axis Capital’s earnings beat estimates in each of the past four quarters, with the average earnings surprise at 54.8%. Over the past year, AXS shares have gained 14%.

The Zacks Consensus Estimate for Axis Capital’s 2022 and 2023 earnings per share points to a year-over-year increase of 23.6% and 7%, respectively.

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