Essent Group Stock Analysis

With the ongoing pandemic, the workplace is changing as more and more people are now working from home (WFH). This trend, however, is set to continue even after everything comes back to normal as several companies such as Facebook and Google want WFH to be more than just a temporary experiment. WFH is not only going to change the workplace but also cities. It is expected that many people are going to move from cities, where rent has been skyrocketing in recent decades. These people moving moving to the suburbs or to rural regions will need to buy a house taking advantage of record low mortgage rates. Taking a mortgage for most people requires Mortgage Insurance.



There are 8 main providers of Mortgage insurance (MI) in the US, two government agencies, the Federal Housing Administration (FHA) and the Veteran Affairs (VA) and six Private Mortgage Insurers (PMI). One of these PMI is Essent Group, which was founded in 2008 and had its IPO in November 2013. Since its IPO, it has been the second fastest growing business after National MI but Essent Group has now a more resilient business and has started paying dividends recently. Essent Group could be the real winner of the growth of the PMI industry.


Almost all of the metrics that are commonly used to value insurance companies and more precisely mortgage insurance companies, show that Essent Group is the best in the industry.


But Essent Group stock is more expensive than its peers, currently trading at a premium of book value, but it is also the fastest growing. Although National MI is the real growth stock of the industry, the business has not matured enough and they will be less efficient as it ages. Essent Group has already matured and the company is now even paying a dividends with a payout ratio of 14%. Essent Group can increase its dividends and even buyback shares in the coming years.

Right now, interest rates are at zero percent with record low mortgage rates. This can really bring a boost to the business growth but higher interest rates in the future will certainly bring more profits.


I will say that Essent Group is the most efficient among the PMIs and it is also the one with the highest growth prospect. At the same time, there is a premium on the stock. It is like the JPMorgan Chase of the PMI industry.


As a long-term investment, it could be a very good candidate.


Here's the full research and analysis of Essent Group on my research partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/24362734