Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Radian Group (NYSE: RDN), a provider of mortgage insurance coverage, soared as much as 17% after reporting much better-than-expected third-quarter earnings results.
So what: For the quarter, Radian Group reported a 49% decline in revenue to $260.8 million over the previous year, and a profit of $0.11 per share (its first profit in 2012). That may not sound very strong, but all things considered, Radian crushed Wall Street's estimates for $224.6 million in revenue and an expected loss of $0.52. That is indeed an EPS beat of $0.63 when all is said and done. In addition to writing $10.6 billion in mortgage insurance this quarter, Radian recorded a fair value derivative gain of $41.8 million and a net gain on investments of $84.7 million.
Now what: This is a good first step for Radian, but it still has a long way to go before I'd give the company anywhere near a clean bill of health. Radian's underwritings prior to the recession weren't the highest quality, and it's still dealing with the legacy risks of those assets. If Radian can show me a few more profitable quarters like this, where mortgage insurance underwriting goes up by double-digits, then I'd be willing to give the company another look. In the meantime, I wouldn't allow today's large move higher to suck you into a long and drawn-out turnaround story.
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