Radian Group: A Contrarian's Play in Mortgage Insurance

The recent downgrade of Radian Group (RDN) to Neutral by Compass Point Research has sparked questions about whether the stock's near-term volatility presents a buying opportunity. With mortgage rates at 7%, headwinds for the mortgage insurance sector are undeniable. Yet, a deeper dive into Radian's fundamentals, valuation multiples, and technical price dynamics reveals a compelling contrarian case. Here's why investors should consider RDN now—before the broader market catches on.

The Downgrade: A Catalyst for Contrarian Thinking

On May 23, 2025, Compass Point cut its rating on RDN to Neutral from Buy, citing concerns over slowing insurance-in-force growth and earnings deceleration due to elevated mortgage rates. While the downgrade reflects legitimate short-term risks—such as reduced origination volumes—the analyst also raised its price target to $37 from $34, signaling lingering optimism about Radian's long-term value.

This divergence between the downgrade and the price target hike highlights a critical tension: near-term sentiment is overshooting the fundamentals. Radian's first-quarter 2025 results, for instance, showed a 12.6% return on equity, an 11% year-over-year rise in book value per share to $32.48, and a robust $145 million net income. Despite a $295 million unrealized loss on investments (a one-time hit), the company executed a $207 million share repurchase and secured a multiyear reinsurance arrangement with favorable terms. These moves underscore Radian's financial resilience.

Valuation: A Mispriced Asset?

Let's dissect Radian's valuation. At the time of the downgrade, RDN traded at $33.66, below its $37 price target and far below its $32.48 book value per share. This creates a stark price-to-book (P/B) ratio of 1.04, well below its five-year average of 1.4 and peers like MGIC (MTG), which trades at 1.6x book value.

The GuruFocus GF Value of $23.76, suggesting a 29% downside, appears overly pessimistic. This metric likely assumes prolonged mortgage rate hikes and ignores Radian's capital management discipline—such as its $834 million in liquidity and $2.1 billion PMIERs cushion, which provide ample runway for uncertainty. Meanwhile, the consensus target of $36.67 (8.9% upside) and its Hold rating reflect a balanced view.

Technical Analysis: Support Levels Signal a Floor

From a technical perspective, RDN's chart offers further encouragement. The stock has held above $30—a key support level—despite macro pressures, and its 50-day moving average has recently crossed above the 200-day average, forming a bullish “golden cross”. A close above $35 could unlock momentum toward the $37 price target.

Critically, Radian's RSI (Relative Strength Index) remains within neutral territory (around 50), suggesting no overbought/oversold extremes. Meanwhile, its volume trends have stabilized, signaling a lack of panic selling—a positive sign for contrarians.

Why the Downgrade May Have Overcooked the Bear Case

Compass Point's concerns are valid in the short term, but they understate Radian's long-term moat. Consider:
1. Mortgage Rates Won't Stay Elevated Forever: Historically, rates peak ahead of economic slowdowns. If the Fed pivots toward easing later in 2025/2026, mortgage demand—and Radian's insurance-in-force growth—could rebound.
2. High Persistency Rates: Radian's 86% persistency rate (the percentage of policies retained annually) is among the highest in the sector, shielding it from cyclical declines in new originations.
3. Capital Allocation Excellence: Radian's $750 million share repurchase authorization and six-year dividend growth streak (4.1% increase in Q1) demonstrate management's focus on shareholder returns.

The Contrarian Play: Buy the Dip

The $33.66 entry point offers a margin of safety given Radian's $32.48 book value and its ability to weather macro headwinds. Investors should view the Compass Point downgrade as a catalyst to accumulate shares at a 10% discount to book value, especially as:
- Technicals signal a bottoming process.
- Valuation multiples are at multiyear lows relative to peers.
- Long-term drivers—like Radian's diversified reinsurance deals and balance sheet strength—remain intact.

Risks and the Bottom Line

No investment is risk-free. Risks include:
- Persistent high mortgage rates stifling housing demand longer than expected.
- Further unrealized investment losses if market volatility spikes.
- Regulatory changes impacting the mortgage insurance sector.

However, these risks are already priced into RDN's depressed valuation. For investors with a 12–18-month horizon, Radian presents a compelling asymmetry: limited downside (due to book value support) and substantial upside if the housing market stabilizes or rates retreat.

In a market where fear drives short-term sentiment, Radian Group offers a rare opportunity to buy value at a critical inflection point. This is a stock to add now—before the broader market realizes its true worth.

Action Item: Use the $30–$35 range as a buying zone. A breakout above $37 confirms the technical bullishness. Stay alert for catalysts like Fed policy shifts or housing data improvements.

Investors should conduct their own due diligence and consider consulting a financial advisor before making investment decisions.