NMI Holdings (NMIH) up 29% YTD: Will the rally continue? – August 21, 2024
Shares of NMI investments (NMIH – Free Report) have gained 28.9% year to date, outperforming the industry’s 24.6% gain, the financials sector’s 11.6% gain and the S&P 500 Composite’s 17.5% gain.
An improved mortgage insurance portfolio, higher volume of new insurance originations, a comprehensive reinsurance program, a solid capital position and effective capital deployment are the driving forces behind this Zacks Rank #2 (Buy) stock.
This mortgage insurer has repeatedly provided surprises over the past six quarters.
NMIH’s return on equity (ROE) for the last 12 months is 18.3%, above the industry average of 8%, reflecting its efficiency in utilizing its shareholders’ funds. The company targets a return on equity of 13% over the medium term.
In addition, the return on capital for the last twelve months was 14.8%, better than the industry average of 6.1%, reflecting the insurer’s efficiency in using its resources to generate income.
The Zacks Consensus Estimate for NMI Holdings’ earnings for 2024 and 2025 have moved 4.7% and 2.6% higher, respectively, over the past 30 days, reflecting analyst optimism.
Image source: Zacks Investment Research
Can NMIH maintain the momentum?
According to the Federal Reserve, the U.S. mortgage market is one of the largest in the world. As of December 31, 2023, there was nearly $13 trillion in mortgage debt outstanding, including both primary and secondary components. NMIH is expected to benefit from new business opportunities in a growing mortgage insurance market. NMI Holdings’ mortgage insurance portfolio is expected to provide a solid foundation for future earnings.
The growth in the production of monthly and single premium policies is linked to the increasing penetration of existing customer accounts. The activation of new customer accounts will also contribute to the results.
To enhance its return profile, absorb losses, provide efficient growth capital and mitigate the impact of credit volatility, NMIH has a comprehensive reinsurance program for its existing portfolio.
To drive margin improvement, NMIH continues to focus on efficiency and cost management.
NMIH conducts share repurchases and has a share repurchase program totaling $124.9 million.
All of these factors together should help the insurer continue to generate solid shareholder returns in the mid-double-digit range.
The Zacks Consensus Estimate for NMI Holdings’ earnings in 2024 is $4.44, up 15.6% from the prior year on 11.8% higher revenues of $647.1 million. The consensus estimate for earnings per share in 2025 is $4.69, up 5.6% from the prior year on 6.5% higher revenues of $689 million.
The expected long-term growth rate is 9.8%. Most notably, earnings have grown by 18.7% over the past five years, which is better than the industry average of 10.5%. NMI Holdings’ outstanding primary insurance portfolio is driving industry-leading growth.
Attractive valuation
NMIH shares are trading at a price-to-book ratio of 1.49, which is below the industry average of 1.56. Before the valuation increases, it is advisable to take a position in the stock.
This insurer has a Value Score of B, which reflects an attractive valuation. Backtesting results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 offer better returns.
Other stocks to consider
Some other highly valued stocks in the insurance industry are Inheritance insurance (HRTG – Free report), Axis Capital Holdings (AXS – Free report) and ProAssurance Corporation (PRE – Free Report), each with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Heritage Insurance’s earnings beat estimates in three of the last four quarters and came in below estimates in one quarter. The average beat was 49.15%. Year-to-date, HRTG has gained 132.4%.
The Zacks Consensus Estimate for HRTG’s earnings in 2024 and 2025 is for year-over-year growth of 10.3% and 18.1%, respectively.
Axis Capital’s earnings beat estimates in each of the last four quarters. The average earnings surprise was 94.62%. Year-to-date, AXS stock is up 35.1%.
The Zacks Consensus Estimate for AXS earnings for 2024 and 2025 is for year-over-year growth of 8.3%, respectively.
ProAssurance’s earnings beat expectations in two of the last four quarters and were below expectations in the other two. PRA shares have lost 2.6 percent since the beginning of the year.
The Zacks Consensus Estimate for PRA’s earnings in 2024 and 2025 is for year-over-year growth of 457.1% and 49.2%, respectively.
