How Do We Tell if Radian (RDN) Is Undervalued?

Radian may be undervalued with poor growth indicators, but the 7 analysts following the company give it an rating of hold. Their target prices range from $21.0 to $30.0 per share, for an average of $25.79. At today's price of $25.52, Radian is trading -1.03% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Radian Group Inc., together with its subsidiaries, engages in the mortgage and real estate services business in the United States. Based in Wayne, PA, the mid-cap Finance company has 1,400 full time employees. Radian has provided a 3.2% dividend yield over the last 12 months.

Radian has a trailing twelve month P/E ratio of 5.9, compared to an average of 14.34 for the Finance sector. Based on its EPS guidance of 3.15, the company has a forward P/E ratio of 8.1.

The average compound growth rate of the company's historical and projected earnings per share is -0.3%. On this basis, the company's PEG ratio is -16.91. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 6.0%, which gives us a PEG ratio of 0.89. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Radian shares are underpriced.

On the other hand, the market is potentially undervaluing Radian in terms of its book value because its P/B ratio is 0.97. In comparison, the sector average P/B ratio is 1.57. The company's shares are currently -41.0% below their Graham number, indicating that its shares have a margin of safety.

If analysts are giving the the company a mediocre rating despite its low valuation point, it could be related to the company's disappointing cash flows. Radian's dissapointing EPS growth rate of 7.8% is another negative point.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $1,527 $1,439 $1,330 $1,191
Interest Income -$56,310 -$71,150 -$84,344 -$84,454
Net Margins 44.03% 27.36% 45.17% 62.39%
Net Income (MM) $672 $394 $601 $743
Depreciation & Amort. -$22,288 -$5,144 -$3,450 -$4,308
Earnings Per Share $3.2 $2.0 $3.16 $4.32
EPS Growth n/a -37.5% 58.0% 36.71%
Diluted Shares (MM) 210 197 190 156
Free Cash Flow (MM) $667 $641 $545 $371
Capital Expenditures (MM) -$28 -$17 -$13 -$18
Long Term Debt (MM) $1,022 $1,582 $1,560 $1,569
Net Debt / EBITDA 1.61 2.69 1.65 1.45
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.