Everest Group (EG) Gains 23% YTD: Will the Rally Continue?
Shares of Everest Group Ltd. EG have gained 22.6% year to date, outperforming the Finance sector’s increase of 7.7% and the Zacks S&P 500 composite’s rise of 19.4%. The industry has declined 0.4% in the said time frame. With a market capitalization of $17.6 billion, the average volume of shares traded in the last three months was about 0.4 million.
New business growth, strong renewal retention, continued favorable rate increases, solid capital position and upbeat guidance continue to drive this Zacks Rank #2 (Buy) company. EG, the seventh-largest global property and casualty reinsurer, has a decent history of delivering positive surprises in three of the last four reported quarters while missing in one, the average being 24.50%. Earnings grew 16.5% over the last five years, better than the industry average of 4.5%. Everest Group has a VGM Score of A.
Return on equity (ROE), a profitability measure to identify how efficiently a company is utilizing its shareholders’ funds, has been improving over the last several years. EG’s trailing 12-month ROE of 21.9% is much better than the industry average of 13.2%.
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Can It Retain the Bull Run?
The Zacks Consensus Estimate for Everest Group’s 2023 earnings is pegged at $55.60 per share, indicating a 105.3% increase on 19.4% higher revenues of $15 billion. The consensus estimate for 2024 earnings is pegged at $61.71 per share, indicating an 11% increase on 15.1% higher revenues of $17.2 billion.
The expected long-term earnings growth rate is 37.3%, outperforming the industry average of 12.4%. It has a Growth Score of B.
EG’s global presence, product diversification, rate increase and high retention rate bode well for growth. While an increase in property and short tail business and a rise in specialty casualty business are likely to boost the Insurance segment, leveraging opportunities stemming from the continued disruption and evolution of the reinsurance market should poise the Reinsurance segment for growth.
Higher income from fixed income portfolio, increase in limited partnership income, rise in dividend income from equity portfolio and increased income from other invested assets in an improved rate environment should boost net investment income, an important component of the top line.
Everest boasts a strong capital position, banking on sufficient cash generation capabilities and benefits from capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities.
Everest Group has increased dividends at an eight-year CAGR (2015-2022) of 7.1% and targets a total shareholder return of more than 13% by 2023 and more than 17% by 2026, reflecting robust and well-diversified earnings power. EG boasts consistent and industry-leading shareholder returns.
Optimistic Guidance
The insurer expects gross written premium to witness a three-year CAGR of 10-15%. Segment-wise, gross written premium in the Insurance segment is expected to rise at a three-year CAGR of 18-22%, while the same in the Reinsurance segment is expected to witness a three-year CAGR of 8-12%.
Given prudent underwriting, EG aims for a low-90 combined ratio in 2023, which will improve to 89-91% by 2026. Return on invested assets is projected between 2.75% and 3.25%. The insurer targets a long-term debt-leverage ratio between 15% and 20%.
Attractive Valuation
Everest Group shares are trading at a price-to-book multiple of 1.6, lower than the industry average of 2.5.
EG has a Value Score of A. Back-tested results have shown that stocks with a Value Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or #2, offer better returns.
Before valuation expands, one can add shares to portfolio for better returns.
Other Stocks to Consider
Some other top-ranked stocks from the insurance industry are Enact Holdings ACT, Assurant Inc. AIZ and Old Republic International ORI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Enact delivered a four-quarter average earnings surprise of 21.82%. Year to date, ACT’s shares have gained 14.9%. The Zacks Consensus Estimate for ACT’s 2023 and 2024 earnings has risen by 4.9% and 1.1%, respectively, in the past 30 days.
The Zacks Consensus Estimate for Assurant’s 2023 and 2024 earnings has moved 15.8% and 7% north, respectively, in the past 30 days. AIZ’s delivered a four-quarter average earnings surprise of 42.38%. Its shares have gained 24.6% year to date.
Old Republic delivered a four-quarter average earnings surprise of 28.59%. Year to date, ORI’s shares have gained 19.9%. The Zacks Consensus Estimate for ORI’s 2023 and 2024 earnings has moved north by 2.6% and 3%, respectively, in the past 30 days.
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