Will MGIC (MTG) Beat Q3 Earnings on Housing Recovery?

We expect private mortgage insurer MGIC Investment Corp. (MTG) to beat expectations when it reports third-quarter 2014 results before the opening bell on Oct 15.

Why a Likely Positive Surprise?

Our proven model shows that MGIC Investment is likely to beat earnings because it has the right combination of key factors.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +18.2%. This is a meaningful and leading indicator of a positive earnings surprise for this company.

Zacks Rank: MGIC Investment carries a Zacks Rank #3 (Hold). The stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

What is Driving Better-than-Expected Earnings?

We expect MGIC Investment’s earnings to see continued momentum from declining claims, moderating delinquency levels as well as increase in new business written.

We also expect earnings to benefit from larger origination volume due to the company’s increasing market share in the private mortgage insurance industry. The recent expansion of sales team will also enhanced business and thereby boost the top line.

In the last quarter, this private mortgage insurer delivered a 7.7% negative earnings surprise. However, the average beat for the trailing four quarters is 60.6%.

Other Stocks to Consider

Here are some companies in the financial sector worth considering as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Radian Group Inc. (RDN) has an Earnings ESP of +6.3% and carries a Zacks Rank #3 (Hold).

Horace Mann Educators Corp. (HMN) has an Earnings ESP of +5.5% and carries a Zacks Rank #2.

Arch Capital Group Ltd. (ACGL) has an Earnings ESP of +4.2% and carries a Zacks Rank #2.