On Jan 2, Zacks Investment Research downgraded Radian Group Inc. (RDN) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Radian Group witnessed downward estimate revisions following weak results. It delivered negative surprises in two of its last four quarters (average being negative 77.8%), with third quarter throwing highest negative surprise of 233.3%.
Radian Group reported operating loss per share of 10 cents for the last reported quarter. Loss was significantly wider than the Zacks Consensus Estimate loss of 3 cents per share. The number included $22 million of incurred loss that was booked for Freddie Mac Agreement and also nearly $16.8 million of variable compensation expenses directly associated with the stock price increase of the company during the reported quarter.
The poor results came following lower revenues that fell 6.2% year over year. The downside accounted for net losses on investments as well as weak performances by both Mortgage Insurance and Financial Guaranty segments.
Radian Group’s debt balance also increased 38.9% from the 2012-end level. Book value per share as on Sep 30, 203 stood at $5.17, reducing 6.2% from the 2012-end level.
Over the last 60 days, the Zacks Consensus Estimate for 2013 plunged from a loss of $1.40 per share to $1.60 a share as nearly half of the estimates were revised downwards. The Zacks Consensus Estimate for 2014 declined 10% to 99 cents over the same time frame.
Other Stocks to Consider
We prefer to avoid Radian Group for the time being. However, investors interested in the multiline insurance industry may consider stocks like Prudential plc (PUK), AEGON N.V. (AEG) and Cigna Corp. (CI). While Prudential plc sports a Zacks Rank #1 (Strong Buy), both AEGON and Cigna carry a Zacks Rank #2 (Buy).
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