November 25 will conclude the 25 day quiet period on underwriter research reports following Essent Group (NYSE:ESNT)'s October 31 IPO, allowing the IPO's underwriters to release reports about the firm into the market and likely leading to a short-term increase in the price of the firm's stock.
ESNT's IPO priced at $17-above the expected range of $13.50-$15.50-and has since continued to gain value, peaking at $23 per share and closing at $21.19 as of November 15. See prior article.
The IPO's underwriters, including J.P. Morgan, Goldman Sachs, Barclays, Credit Suisse, BofA Merrill Lynch, Dowling & Partners, Keefe Bruyette Woods, Macquarie Capital, and Wells Fargo Securities, will attempt to take advantage of the stock's strong beginnings and push the price higher through a release of generally positive information about ESNT coinciding with the expiration of the quiet period.
Our past two years of research and academic studies on the effects of the close of the quiet period have led to empirical evidence of a correlation between the quality and quantity of underwriters and a positive bump in stock price at the ending of the quiet period, meaning ESNT's list of powerful underwriters should play in its favor in the days surrounding November 25.
This effect typically becomes visible days ahead of the actual expiration of the quiet period, as investors recognize that the information released by underwriters will be mostly positive (underwriters have no reason to release negative reviews of a firm that they just underwrote) and buy up shares in order to take advantage of the coming information.
Essent Group, a private mortgage insurance company formed to serve the emerging needs of the housing finance industry during and after the American housing crisis, wrote its initial policy in May of 2010. The firm has since claimed a growing percentage of market share, and now boasts an estimated 12% market share in terms of new insurance written for the three months ending June 30, 2013. ESNT provides mortgage firms with the opportunity to collaborate with an insurer that is prepared to deal with contemporary mortgage issues and can operate without any pre-crisis baggage. ESNT had master policy relationships with approximately 865 customers as of September 30, 2013, including 20 of the 25 largest American mortgage originators.
CEO and Founder Mark A. Casale has been with the ESNT since its inception and has served on its board of directors since 2008. Mr. Casale has over 25 years of experience in financial services management. He has previously served in various roles with Radian, including a stint as president of Radian Guaranty, its mortgage subsidiary. His education includes an MBA in finance from New York University and a BS in accounting from St. Joseph's University.
ESNT post-housing crisis model seems to be paying off; the firm has become profitable, and its Fannie Mae and Freddie Mac approval and lack of pre-crisis obligations grant the firm a likelihood of future stability.
Investors have clearly seen the firm's potential, and given the none-too-distant memory of the financial collapse, lenders should continue to see the same value. ESNT's rapid growth in market share indicates that the firm has been able to take advantage of the advantageous post-crisis environment.
The stock looks like a promising buy, and the upcoming quiet expiration provides all the more incentive to invest in ESNT.
Disclosure: I am long ESNT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.