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Arch Capital Surges 46% YTD: Will the Momentum Continue?

Zacks Equity Research

Arch Capital Group Ltd.’s ACGL shares have rallied 46% year to date, outperforming the industry's rise of 1.2% and the Zacks S&P 500 composite’s increase of 12.2%. With market capitalization of $15.8 billion, average volume of shares traded in the last three months was 1.3 million.

Consistent premium growth, expanding U.S. mortgage insurance business, improving investment income and the company’s robust capital position aided the stock’s upside.


Will the Rally Last?

The Zacks Rank #2 (Buy) provider of property, casualty, and mortgage insurance and reinsurance products should continue to generate sustained premium growth given its diversified product and service portfolio.

Arch Capital’s return on equity was 13.4% in the second quarter of 2019, higher than the industry average of 8.4%. Return on equity is a profitability measure that identifies the company’s efficiency in utilizing its shareholders’ funds.

Arch Capital delivered positive earnings surprise in the last seven quarters, reflecting operational excellence.

The insurer’s inorganic story remains impressive, helping it to expand internationally, add capabilities, enhance operations and diversify its business. The company recently agreed to buy Barbican Group Holdings Limited to penetrate into Lloyd’s and the London market apart from boosting existing specialty lines capabilities.

The company remains focused on expansion of U.S. Mortgage Insurance business. The expansion of the mortgage insurance business also complements its strength in the specialty insurance and reinsurance businesses, which continue to be crucial to its global operations.

Arch Capital has a strong capital position, which shields it from market volatility and enables it to pursue new opportunities in keeping with its long-term strategy. The company has $161 million remaining under its share repurchase authorization.

The Zacks Consensus Estimate for 2019 and 2020 has been revised up by 3.7% and 2.7% in the past 30 days, respectively.

The consensus mark indicates 28.2% and 6.8% growth, respectively, from the year-ago quarter reported figure. The long-term expected earnings growth rate is 10%.

Other Stocks to Consider

Some other top-ranked property and casualty insurance stocks are Alleghany Y, CNA Financial CNA and Cincinnati Financial CINF.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprise of 30.80% in the last reported quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered positive surprise of 6.93% in the last reported quarter. The stock carries a Zacks Rank #2.

Cincinnati Financial provides property casualty insurance products in the United States. The company delivered positive surprise of 32.81% in the last reported quarter. The stock carries a Zacks Rank #2.

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