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Arch Capital (ACGL) Up 26% YTD: Will the Bull Run Continue?

Shares of Arch Capital Group Ltd. ACGL have rallied 26.4% year to date, outperforming the industry’s increase of 4%. The Finance sector and the Zacks S&P 500 composite have decreased 13% and 17.4%, respectively, in the said time frame. With a market capitalization of $20.8 billion, the average volume of shares traded in the last three months was 3.6 million.

New business opportunities, rate increases, growth in existing accounts and solid capital position continue to drive this Zacks Rank #3 (Hold) insurer, which has a decent track of beating earnings estimates in three of the last four reported quarters.

Return on equity in the trailing 12 months was 13.2%, better than the industry average of 6.7%. This highlights the company’s efficiency in utilizing shareholders’ fund.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

This insurer has an impressive VGM Score of B.

Can It Retain the Momentum?

The Zacks Consensus Estimate for 2022 earnings is pegged at $4.02 per share, indicating a year-over-year increase of 12.3% on 14.1% higher revenues of $9.7 billion.  The consensus estimate for 2023 earnings is pegged at $5.63 per share, up 40.2% on 21.5% higher revenues of $11.8 billion.  The expected long-term earnings growth rate is pegged at 10%.

Arch Capital, a leading Specialty P&C and Mortgage Insurance business, operates across a wide range of geographies and offers products that provide meaningful diversification and earnings stability.

ACGL has been generating improved net premiums written over the years. The momentum should continue, banking on new business opportunities, rate increases, growth in existing accounts and growth in Australian single-premium mortgage insurance.

It looks to diversify its Mortgage Insurance business via strategic acquisitions that also complement the strength in the specialty insurance and reinsurance businesses. Strategic buyouts have been helping Arch Capital expand internationally, add capabilities, enhance operations and diversify its business at attractive risk-adjusted returns.

Arch Capital’s solid balance sheet with high liquidity and low leverage shields it from market volatility. This, in turn, helps ACGL retain its financial strength and flexibility required to pursue new opportunities in keeping with its long-term strategy. ACGL has $596.4 million remaining under its buyback authorization.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are W.R. Berkley Corporation WRB, Berkshire Hathaway (BRK.B) and American Financial Group, Inc. AFG. While W.R. Berkley sports a Zacks Rank #1 (Strong Buy), Berkshire Hathaway and American Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of W.R. Berkley surpassed earnings estimates in each of the last four quarters, the average beat being 25.63%. In the past year, the insurer has gained 26.9%.

The Zacks Consensus Estimate for W.R. Berkley’s 2022 and 2023 earnings has moved 5.1% and 2.4% north, respectively, in the past 30 days.

Berkshire Hathaway delivered a four-quarter average earnings surprise of 22.18%.  In the past year, Berkshire Hathaway has gained 9%.

The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings implies a respective increase of 15% and 6.2% from the year-ago reported number.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 28.16%. In the past year, American Financial has lost 0.4%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 0.6% and 1.8% north, respectively, in the past seven days.


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