Arch Capital (ACGL) Surges 23% YTD: More Room for Growth?
Arch Capital Group Ltd.’s ACGL shares have rallied 22.5% year to date, outperforming the industry’s growth of 14.1%, the Finance sector’s rise of 2.9% and the Zacks S&P 500 composite’s increase of 8%. With a market capitalization of $34 billion, the average volume of shares traded in the last three months was 1.7 million.
Business opportunities, rate increases, growth in existing accounts and a solid capital position continue to drive Arch Capital. This Zacks Rank #3 (Hold) insurer has a decent history of delivering earnings surprises in the last four reported quarters. Earnings of this leading specialty P&C and mortgage insurer increased 32.3% in the last five years, better than the industry average of 13.1%.
Return on equity in the trailing 12 months was 21.9%, better than the industry average of 7.3%. This highlights the company’s efficiency in utilizing shareholders’ funds.
The company has a VGM Score of B. 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. The company has a Growth Score of B. The Style Score analyzes the growth prospects of a company.
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 16.4%, better than the industry average of 5.6%.
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Can ACGL Retain the Bull Run?
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 2.3% and 1% north, respectively, in the past 30 days, reflecting analyst optimism.
Business opportunities, rate increases, a rise in existing accounts and growth in Australian single-premium mortgage insurance should benefit Arch Capital’s premiums. Widespread operations coupled with a compelling product portfolio provide meaningful diversification and earnings stability to ACGL. We estimate 2026 earnings to witness a three-year CAGR of 1.1%.
Arch Capital’s inorganic growth rides on expanding internationally, enhancing operations and diversifying the business at attractive risk-adjusted returns. The diversification of its Mortgage Insurance business via strategic acquisitions complements the strength of the specialty insurance and reinsurance businesses.
A growing base of invested assets coupled with new money rates of 4.5-5% in the fixed-income portfolio should benefit investment income.
Arch Capital’s solid balance sheet, with high liquidity and low leverage, shields it from market volatility and supports growth initiatives. Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.
Stocks to Consider
Some better-ranked stocks from the same space are Axis Capital Holdings AXS, The Progressive Corporation PGR and Mercury General MCY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axis Capital delivered a four-quarter average earnings surprise of 102.57%. The stock has gained 12.8% year to date. The Zacks Consensus Estimate for AXS’ 2024 and 2025 earnings indicates an increase of 3.1% and 10.1%, respectively.
Progressive beat the Zacks Consensus Estimate in two of the last four quarters while missing the same in the other two. The stock has gained 24.5% year to date. The Zacks Consensus Estimate for PGR’s 2024 and 2025 earnings indicates an increase of 49.4% and 14.8%, respectively.
Mercury General delivered a four-quarter average earnings surprise of 3414.48%. The stock has gained 26.2% year to date. The Zacks Consensus Estimate for MCY’s 2024 and 2025 earnings indicates an increase of 866.7% and 34.5%, respectively.
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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
Mercury General Corporation (MCY) : Free Stock Analysis Report
