Finding a reliable growth opportunity is a desire of nearly every investor. A good way to screen for growth, is to look at which industries are leading the market. Essent Group Ltd. (NYSE:ESNT) is a private mortgage insurance company that has been on a roll thus far in 2017. Not only is Essent performing very well, but the overall private mortgage insurance industry is outperforming most other industries in the market. Essent began writing mortgage policies in 2010, and has since then established a 12% market share in the industry. Essent has some strong characteristics of a good growth stock, and looks well positioned for more growth moving forward.
On Friday, February 10, 2017, Essent reported Q4 EPS of $0.68, up 42% year-over-year. This topped street estimates of $0.62. Net income came in at $62.7 million.
There are seven major competitors in the mortgage insurance industry (listed in order of market share): United Guaranty, MGIC Investment (NYSE:MTG), Radian Group , Genworth Financial (NYSE:GNW), Essent Group , and NMI Holdings (NASDAQ:NMIH), and Arch Mortgage Insurance. The industry is highly competitive currently. Prior to the housing crisis, origination volume was high enough to sustain more competition, however since the crisis there is less volume causing these remaining providers to compete for a share of a much smaller originations market. Assuming a mortgage originations market of $1.5 trillion per year, the share that would use private mortgage insurance is approximately $200 billion in originations.
Despite the heavy competition, the mortgage insurance industry as a whole is performing well. The underlying fundamentals of housing are strong, and the real estate cycle is still in expansion mode. Recent actions from the Trump administration have helped the industry, as deregulation would offer a better environment for mortgages insurers to grow. Upcoming rate hikes might make for uncertainty moving forward though, and the impact of the hikes is still unclear.
- On February 27, 2017
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