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Arch Capital (ACGL) Gains 13% YTD: Will the Rally Continue?

Arch Capital Group Ltd.’s ACGL shares have rallied 13.1% year to date, outperforming the industry’s growth of 0.1%. The Finance sector has fallen 1.6%, while the Zacks S&P 500 composite has risen 10.6%, respectively, in the same period. With a market capitalization of $26.4 billion, the average volume of shares traded in the last three months was 2.1 million.

Business opportunities, rate increases, growth in existing accounts and a solid capital position continue to drive this Zacks Rank #3 (Hold) insurer’s performance. This leading specialty P&C and mortgage insurer has a decent history of delivering earnings surprises in the last four reported quarters. Earnings of the insurer increased 24.5% in the last five years, better than the industry.

Return on equity in the trailing 12 months was 173.5%, better than the industry average of 6.9%. This highlights the company’s efficiency in utilizing shareholders’ funds.

The company has a VGM Score of A. The Style Score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Can ACGL Retain the Bull Run?

The Zacks Consensus Estimate for 2023 earnings stands at $6.22, suggesting a year-over-year increase of 27.7% on 23.2% higher revenues of $12.5 billion. The consensus estimate for 2024 earnings is pegged at $6.89, indicating a year-over-year increase of 10.9% on 9.6% higher revenues of $13.7 billion.

The expected long-term earnings growth rate is pegged at 10%. The company has a Growth Score of B. The Style Score analyzes the growth prospects of a company.

Arch Capital’s premium should continue to benefit from business opportunities, rate increases, growth in existing accounts and growth in the Australian single-premium mortgage insurance. With operations spread across geographies, a compelling product portfolio provides meaningful diversification and earnings stability to ACGL.

ACGL’s impressive inorganic growth encompasses international expansion, enhancing operations and diversifying the business at attractive risk-adjusted returns. Diversification of its Mortgage Insurance business via strategic acquisitions complements the strength of the specialty insurance and reinsurance businesses.

Also, with new money rates of 4.5-5% in the fixed-income portfolio and a growing base of invested assets, ACGL expects to deliver an increasing level of investment income to help boost the bottom line.

Arch Capital’s solid balance sheet, with high liquidity and low leverage, shields it from market volatility and supports growth initiatives.

ACGL has a Value Score of B. This style score helps find the most attractive value stocks.

Stocks to Consider

Some better-ranked stocks from the insurance industry are RLI Corporation RLI, Kinsale Capital Group KNSL and Berkshire Hathaway (BRK.B).

RLI delivered a four-quarter average earnings surprise of 43.50%. Year to date, the insurer has lost 3.9%.

The Zacks Consensus Estimate for RLI’s 2023 earnings indicates a year-over-year increase of 4.1%. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale delivered a four-quarter average earnings surprise of 14.77%. Year to date, the insurer has gained 17.5%.

The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings indicates respective year-over-year increases of 32.9% and 19.7%. The company flaunts a Zacks Rank #1 at present.

Berkshire Hathaway delivered a four-quarter average earnings surprise of 20.29%. Year to date, the insurer has gained 3.8%.

The Zacks Consensus Estimate for BRK.B’s 2023 and 2024 earnings indicates respective year-over-year increases of 35.8% and 1.3%. It presently carries a Zacks Rank #2.

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Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report

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