NMI Holdings Surges 29% YTD: Will the Rally Last?

Shares of NMI Holdings NMIH have rallied 28.9% year to date, outperforming the industry's increase of 24.6%, the Finance sector's increase of 11.6% and the S&P 500 composite's rise of 17.5%.

An improving mortgage insurance portfolio, higher new insurance written volume, a comprehensive reinsurance program, its solid capital position and effective capital deployment drive this Zacks Rank #2 (Buy) stock.

This mortgage insurer has a decent history of delivering surprises in the last six quarters.

NMIH's return on equity (ROE) for the trailing 12 months is 18.3%, better than the industry average of 8%. This reflects efficiency in utilizing its shareholders' funds. It targets 13% ROE over the medium term.

Also, the return on invested capital in the trailing 12 months was 14.8%, better than the industry average of 6.1%, which reflected the insurer's efficiency in utilizing funds to generate income.

The Zacks Consensus Estimate for NMI Holdings' 2024 and 2025 earnings has moved 4.7% and 2.6% north, respectively, in the past 30 days, reflecting analyst optimism.

Image Source: Zacks Investment Research

Can NMIH Retain the Momentum?

Per the Federal Reserve, the U.S. residential mortgage market is one of the largest in the world, with nearly $13 trillion of mortgage debt outstanding as of Dec 31, 2023, and includes both primary and secondary components. NMIH stands to gain from new business opportunities from a growing mortgage insurance market. NMI Holdings' mortgage insurance portfolio is expected to create a strong foundation for future earnings.

Growth in monthly and single premium policy production is tied to the increased penetration of existing customer accounts. New customer account activation will also drive results.

In order 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 in-force portfolio.

To drive margin expansion, NMIH remains focused on efficiency and expense management.

NMIH engages in share buybacks and has a $124.9 million share repurchase program under its kitty.

All these together should help the insurer continue to generate solid mid-teens shareholders' returns.

The Zacks Consensus Estimate for NMI Holdings' 2024 earnings is pegged at $4.44, which indicates a 15.6% increase from the year-ago reported figure on 11.8% higher revenues of $647.1 million. The consensus estimate for 2025 earnings per share is pegged at $4.69, which implies a 5.6% increase year over year on 6.5% higher revenues of $689 million.

The expected long-term growth rate is pegged at 9.8%. Notably, earnings grew 18.7% in the past five years, better than the industry average of 10.5%. NMI Holdings' superior primary insurance in-force portfolio generates industry-leading growth.  

Attractive Valuation

NMIH's shares are trading at a price-to-book multiple of 1.49, lower than the industry average of 1.56. Before valuation expands, it is wise to take a position in the stock.

This insurer has a Value Score of B, reflecting an attractive valuation.  Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 offer superior returns.

Other Stocks to Consider

Some other top-ranked stocks from the insurance industry are Heritage Insurance HRTG, Axis Capital Holdings AXS and ProAssurance Corporation PRA, each sporting a Zacks Rank #1 (Strong Buy).

Heritage Insurance earnings surpassed estimates in three of the last four quarters and missed in one, the average beat being 49.15%. Year to date, HRTG has rallied 132.4%.

The Zacks Consensus Estimate for HRTG's 2024 and 2025 earnings implies 10.3% and 18.1% year-over-year growth, respectively.

Axis Capital earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 94.62%. Year to date, AXS' stock has surged 35.1%.

The Zacks Consensus Estimate for AXS' 2024 and 2025 earnings indicates 8.3% year-over-year growth each.

ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. Year to date, PRA's stock has lost 2.6%.

The Zacks Consensus Estimate for PRA's 2024 and 2025 earnings suggests 457.1% and 49.2% year-over-year growth, respectively.

To read this article on Zacks.com click here.