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Selective Insurance Group, Inc. SIGI shares have lost 7.4% in the year-to-date period against the industry’s 26% growth. It has also underperformed the Finance sector and the Zacks S&P 500 composite’s return of 13.1% and 17.9%, respectively, in the said time frame.
SIGI Lags Industry, Sector and S&P
Selective Insurance has been grappling with higher expenses over the years, primarily due to increasing loss and loss expense incurred and amortization of deferred policy acquisition costs. In the first half of 2024, the loss and loss expense ratio deteriorated 1,070 basis points (bps) year over year.
Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. Such a massive loss poses an inherent risk to the P&C insurance business, inducing volatility in its results. In the first half of 2024, the combined ratio deteriorated 930 bps year over year. SIGI estimates a GAAP combined ratio of 101.5%, up from the prior guidance of 96.5%.
Closing at $92.13 in the last trading session, the stock stands 16% below its 52-week high of $109.58. The stock is trading below the 200-day simple moving average (SMA) of $97.67, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Selective Insurance’s long-term debt of $508.8 million as of June 30, 2024, increased 1% from the 2023 level. Debt-to-total capitalization deteriorated 20 bps to 14.8% from the level as of Dec. 31, 2023. The company’s times interest earned of 16.5 in the first quarter of 2024 was slightly poor compared with 16.9 at the end of 2023, implying that its earnings are insufficient to cover interest obligations.
SIGI’s Expensive Valuation
The stock is overvalued compared with its industry. It currently has a trailing 12-month P/B ratio of 2.06, higher than the industry average of 1.58.
Shares of three other property and casualty insurers, such as NMI Holdings Inc NMIH, Palomar Holdings, Inc. PLMR and Cincinnati Financial Corporation CINF, are also trading at a multiple higher than the industry average.
Negative Analyst Sentiment
Each of the five analysts covering the stock has lowered estimates for 2024 and 2025 over the past 60 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 43.2% and 3.8% south, respectively, in the past 60 days.
While the consensus estimate for 2024 indicates a 34.8% decline from the year-ago reported figure, the consensus estimate for 2025 indicates an increase of 105.7%.
Factors Favoring SIGI Stock
Exposure growth, solid retention rates and higher new business gains in standard commercial and E&S lines should drive premium growth.
Steady betterment of premiums, improved net investment income and higher other income have resulted in top-line improvement. Over the past seven years (2017-2023), total revenues witnessed a CAGR of 8%.
The E&S Lines segment of Selective Insurance is likely to improve because of renewal pure price increases, higher direct new business and favorable E&S lines marketplace conditions.
Given impressive investment results, Selective Insurance estimates an after-tax net investment income of $360 million that includes $32 million from alternative investments for 2024. Higher income earned on fixed-income securities portfolio due to improved book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment is likely to drive the metric.
Impressive Dividend History of Selective Insurance
Riding on a solid capital position, Selective Insurance has been hiking dividends, which registered a nine-year CAGR (2015-2023) of nearly 8.8%. It had $84.2 million remaining under authorization as of June 30, 2024. Riding on strong financial and operating performance, the board has approved a 17% hike in the quarterly cash dividend in November 2023. Such steadfast endeavors buoy confidence among investors, making it an attractive pick for yield-seeking investors. Its dividend yield of 1.5% appears attractive compared with the industry average of 0.2%.
SIGI’s Favorable Return on Capital
Return on equity in the trailing 12 months was 8.7%, better than the industry average of 7.9%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Wrapping Up: Keep on Holding
While Selective Insurance remains well-poised to gain from strong renewal, fuel price increases, favorable excess and surplus (E&S) lines marketplace conditions and higher income earned on fixed-income securities portfolio, the specific challenges facing the company like exposure to catastrophe loss and escalating expenses cannot be ignored.
Despite its expensive valuation, SIGI should benefit from favorable growth estimates, higher return on capital and prudent capital deployment. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
Shares of Kinsale Capital Group, Inc. KNSL have rallied 38.7% year to date (YTD), outperforming the industry’s 26% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 17.8% and 13.2%, respectively, YTD. With a market capitalization of $10.81 billion, the average volume of shares traded in the last three months was 0.1 million.
KNSL Outperforms Industry, Sector & S&P YTD
The rally was largely driven by a focus on the excess and supply (E&S) market, prudent underwriting, lower expense ratio, growth in the investment portfolio, solid growth projections and effective capital deployment.
This property and casualty insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 9.28%.
KNSL has a VGM Score of B. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.
KNSL Trading Above 50-Day Moving Average
This Zacks Rank #3 (Hold) insurance broker closed at $464.53 on Friday, above its 50-day and 200-day simple moving average (SMA) of $442.60 and $421, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Optimistic Analyst Sentiment for KNSL
Each of the seven analysts covering the stock has raised estimates for 2024, while five analysts have raised the same for 2025 over the past 60 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 2.2% and 1.4% north, respectively, in the last 60 days, reflecting analyst optimism.
Growth Projection for KNSL
The Zacks Consensus Estimate for Kinsale Capital’s 2024 earnings per share indicates an increase of 22.4% from the year-ago reported number. The consensus estimate for revenues is pegged at $1.58 billion, implying a year-over-year improvement of 29.7%.
The consensus estimate for 2025 earnings per share and revenues indicates an increase of 18.6% and 19%, respectively, from the corresponding 2024 estimates.
Earnings have grown 45.7% in the past five years, better than the industry average of 10.5%. The expected long-term earnings growth rate is 15%, outperforming the industry average of 11.1%.
Will the Bull Run Continue?
Premiums should continue to improve, given the company’s strong presence across the E&S market in the United States and high retention rates stemming from contract renewals. Management noted that the E&S market has witnessed significant growth and generated better underwriting results than the broader P&C industry. It remains well-poised to benefit from continued market dislocation, aiding improved submission flows and better pricing decisions.
KNSL’s solid market presence helped it to deliver improved margins and lower loss ratios. The insurer targets clients with small-sized and medium-sized accounts with better pricing and less prone to competition. Management estimates low double-digit rate increases across the book of business.
Kinsale Capital enjoys the best combination of high growth and low combined ratio among its peers. It targets a combined ratio in the mid-80s range over the long term. Also, KNSL is well-poised to generate an improved expense ratio given its proprietary technology platform, which is likely to provide it with a competitive edge over other industry players and scalability in business.
Investment of excess operating funds at higher rates in an improved rate environment should drive investment results. Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.
The insurer has increased dividends since 2017 at a seven-year (2017-2024) CAGR of 12%, riding on the strength of operational excellence that supports a solid capital position.
KNSL’s Favorable Return on Capital
Return on equity in the trailing 12 months was 30.3%, better than the industry average of 7.9%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting ACGL’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 25.4%, better than the industry average of 6%.
KNSL’s Expensive Valuation
KNSL is currently expensive. It is trading at a P/B multiple of 8.60, higher than the industry average of 1.58.
Shares of other insurers like Arch Capital Group Ltd. ACGL and NMI Holdings Inc NMIH are also trading at a multiple higher than the industry average.
However, shares of CNA Financial Corporation CNA are trading at a multiple lower than the industry average.
Zacks Investment Research
MetLife, Inc. MET benefits on the back of a well-performing Group Benefits business, acquisitions and partnerships, cost-cutting efforts and strong cash balance.
Zacks Rank & Price Performance
MetLife carries a Zacks Rank #2 (Buy) at present.
The stock has gained 10% in the past three months compared with the industry’s growth of 5.3%. The Zacks Finance sector and the S&P 500 composite index have returned 0.8% and 2.4%, respectively, in the said time frame.
Favorable Style Score
MetLife carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best opportunities in the value investing space.
Robust Growth Prospects
The Zacks Consensus Estimate for MetLife’s 2024 earnings is pegged at $8.67 per share, which indicates an improvement of 18.3% from the 2023 reported figure. The consensus mark for revenues is $73.2 billion, implying a rise of 2% from the 2023 figure. MET’s earnings estimates witnessed seven upward revisions over the past 60 days against no downward movement.
The consensus mark for 2025 earnings is pegged at $9.83 per share, suggesting an improvement of 13.4% from the 2024 estimate. The same for revenues is $76.5 billion, hinting at a 4.6% increase from the 2024 estimate.
Valuation
Price-to-book (P/B) is one of the multiples used for valuing insurance stocks. Compared with the multiline industry’s trailing 12-month P/B ratio of 2.57, MetLife has a reading of 1.92. It is quite evident that the stock is currently undervalued.
Solid Return on Equity
Return on equity in the trailing 12 months is currently 21.4%, which is higher than the industry’s average of 16.2%. This substantiates the company’s efficiency in utilizing shareholders’ funds.
Business Tailwinds
A key revenue contributor is MetLife's steady premiums, which have been recovering from pandemic-driven declines. Premiums are witnessing a steady increase in the Group Benefits business, wherein it rose 4% year over year in the first half of 2024. Growth has also been robust in its EMEA and Latin America segments, further contributing to the company's revenue stream.
MetLife's focus on streamlining its business, coupled with strategic acquisitions and partnerships, is expected to drive long-term growth. The company has expanded its presence in key areas like vision care and pet insurance through acquisitions, such as Versant Health and PetFirst. It has also strengthened its benefits offerings through partnerships with firms like Aura and Nayya.
A strategic push into private credit investments, marked by the acquisition of Raven Capital, and a collaboration with Fidelity Investments on a fixed immediate income annuity further diversify its business portfolio. Additionally, MetLife continues to reduce volatility by divesting capital-intensive units and intensifying focus on high-growth areas.
MetLife's cost-saving measures have resulted in notable operational improvements. Between 2015 and 2020, the company saw an improvement of 230 basis points in its direct expense ratio. This efficiency trend has continued, with the direct expense ratio remaining below the guided 12.3% in the first half of 2024.
MetLife also benefits from a strong liquidity position, with short-term debt of $390 million as of June 30, 2024, significantly overshadowed by its $20.8 billion in cash and cash equivalents. This financial strength underpins shareholder returns through repurchases and dividend payments. In April 2024, management approved a 4.8% dividend increase.
Other Stocks to Consider
Some other top-ranked stocks in the insurance space include CNO Financial Group, Inc. CNO, MGIC Investment Corporation MTG and Palomar Holdings, Inc. PLMR, each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The bottom line of CNO Financial outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 21.21%. The Zacks Consensus Estimate for CNO’s 2024 earnings suggests 11% year-over-year growth. The consensus mark for CNO Financial’s 2024 earnings has moved north by 3% in the past 30 days.
MGIC Investment’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 15.59%. The Zacks Consensus Estimate for MTG’s 2024 earnings indicates 9.1% year-over-year growth, while the same for revenues implies an improvement of 4.7%. MGIC Investment’s consensus mark for 2024 earnings has moved north by 2.2% in the past 30 days.
The bottom line of Palomar outpaced estimates in each of the trailing four quarters, the average surprise being 17.10%. The Zacks Consensus Estimate for PLMR’s 2024 earnings suggests 30.9% year-over-year growth, while the same for revenues implies an improvement of 41.6%. The consensus mark for Palomar’s 2024 earnings has moved north by 1.3% in the past 30 days.
Shares of CNO Financial, MGIC Investment and Palomar have gained 24.2%, 22.4% and 18.3%, respectively, in the past three months.
Zacks Investment Research
Reporter Name | Uchida T Christopher |
Relationship | Chief Financial Officer |
Type | Sell |
Amount | $204,017 |
SEC Filing | Form 4 |
Palomar Holdings' Chief Financial Officer, Uchida T Christopher, sold a total of 2,160 shares of Common Stock on September 9, 2024, for a total sale amount of $204,017. The sales were conducted at weighted average prices of $93.4233, $94.1232, and $95.5274. Following these transactions, Uchida directly owns 19,590 shares of Palomar Holdings. The reported prices represent weighted averages, indicating sales occurred at multiple prices within specified ranges.
SEC Filing: Palomar Holdings, Inc. [ PLMR ] - Form 4 - Sep. 11, 2024
The S&P 500 Index today is up +0.58%, the Dow Jones Industrials Index is up by +0.06%, and the Nasdaq 100 Index is up by +1.52%.
After starting the day in the red, stocks have rebounded this afternoon. As reported in today’s US consumer price report, core consumer prices in August rose +3.2% y/y, unchanged from July and well above the Fed’s +2.0% target.
US MBA mortgage applications rose +1.4% in the week ended September 6, with the purchase mortgage sub-index up +1.8% and the refinancing mortgage sub-index up +0.9%. The average 30-year fixed rate mortgage fell -14 bp to a 19-month low of 6.29% from 6.43% in the prior week.
US Aug CPI eased to +2.5% y/y from +2.9% y/y in July, right on expectations and the smallest increase in 3-1/2 years. However, Aug CPI ex-food and energy was unchanged from July at +3.2% y/y, right on expectations.
In the wake of last night’s debate, the odds on the betting website PredictIt of Vice President Harris winning the presidency rose to 56% from 53% before the debate.
The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 19% for a -50 bp rate cut at that meeting.
Overseas stock markets today are lower. The Euro Stoxx 50 is down -0.04%. China's Shanghai Composite fell to a 7-month low and closed down -0.82%. Japan's Nikkei Stock 225 closed down by -1.49%.
Interest Rates
December 10-year T-notes (ZNZ24) today are up by +5 ticks. The 10-year T-note yield is down -2.1 bp at 3.622%. Dec T-notes today rallied to a 15-month high, and the 10-year T-note yield fell to a 15-month low of 3.603%. Strength in European government bonds today is providing carryover support to T-notes. Also, today’s slide in stocks has boosted safe-haven demand for T-notes.
T-notes fell back from their best levels after the US Aug core CPI rose +3.2% y/y, right on expectations but well above the Fed’s 2.0% price target. The core CPI report knocked the chances of a 50 bp rate cut at next week’s FOMC meeting down to 17% from 50% last Friday. Supply pressures are also negative for T-notes as the Treasury will auction $39 billion 10-year T-notes later today. Losses in T-notes are limited due to carryover support from
European government bond yields today are moving lower. The 10-year German bund yield fell to a 5-week low of 2.092% and is down -3.8 bp at 2.093%. The 10-year UK gilt fell to a 5-week low of 3.745% and is down -7.1 bp at 3.748%.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
US Stock Movers
Bank stocks are under pressure for a second day after JPMorgan Chase President Pinto said Tuesday that analysts are too optimistic in projecting next year's expenses and net interest income. As a result, Discover Financial Services is down more than -4%. Also, Capital One Financial , Regions Financial , Citizens Financial Group , Cincinnati Financial Corp , and M&T Bank are down more than -3%.
Health insurance stocks with Medicare Advantage plans are falling for a second day after Leerink Partners published a report Tuesday that said those plans might have a tougher time earning high-quality “star ratings” that drive bonus payments. As a result, Humana is down more than -5% to lead losers in the S&P 500, and UnitedHealth Group is down more than -2% to lead losers in the Dow Jones Industrials. Also, CVS Health Corp is down more than -3%, and Elevance Health is down more than -1%.
Albemarle is up more than +8% to lead gainers in the S&P 500 as lithium stocks rallied after UBS said CATL curtailed lithium production at its Jiangxi operation.
Starbucks is up more than +1% to lead gainers in the Nasdaq 100 after CEO Niccol said he is open to exploring a new joint venture partnership structure in China.
Trump Media & Technology is down more than -14% following last night’s Harris-Trump debate, as the odds on the betting website PredictIt of Vice President Harris winning the presidency rose to 56% from 53% before the debate.
GameStop is down more than -16% after reporting Q2 net sales of $798.3 million, weaker than the consensus of $895.5 million.
Palantir Technologies is down more than -2% after a trading update showed exchange-traded funds managed by Cathie Wood’s Ark Investment Management sold 124,626 shares of Palantir.
Rollins Inc is down more than -4% on negative carryover from a -20% plunge in peer Rentokil after it issued a surprise downgrade to its full-year growth estimates.
Morgan Stanley is down more than -1% after Goldman Sachs downgraded the stock to neutral from buy.
Viridian Therapeutics is up more than +8% after Needham & Co. raised its price target on the stock to $48 from $30.
AES Corp is up more than +4% after Jeffries initiated coverage on the stock with a recommendation of buy and a price target of $20.
Viking Therapeutics is up more than +7% after JPMorgan Chase initiated coverage on the stock with a recommendation of overweight and a price target of $80.
William-Sonoma is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $156.
Earnings Reports (9/11/2024)
Designer Brands Inc (DBI), Oxford Industries Inc (OXM), Vera Bradley Inc (VRA).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.
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