Here's Why You Should Add Arch Capital (ACGL) to Your Portfolio
Arch Capital Group Ltd.’s ACGL shares have rallied 23% in a year, outperforming the industry’s growth of 11.7%, the Finance sector’s rise of 12.3% and the Zacks S&P 500 composite’s increase of 21.9%. With a market capitalization of $28.8 billion, the average volume of shares traded in the last three months was 2 million.
Business opportunities, rate increases, growth in existing accounts and a solid capital position continue to drive this Zacks Rank #2 (Buy) 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 average of 16.6%.
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.
Also, the return on invested capital 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.
Can ACGL Retain the Bull Run?
The Zacks Consensus Estimate for 2024 earnings is pegged at $7.82 on revenues of $15.6 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.
Business opportunities, rate increases, a rise in existing accounts and growth in Australian single-premium mortgage insurance should benefit Arch Capital’s premium. With operations spread across geographies, a compelling product portfolio provides meaningful diversification and earnings stability to ACGL.
The company’s inorganic growth encompasses international expansion, 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.
The insurer’s investment income should benefit from new money rates of 4.5-5% in the fixed-income portfolio and a growing base of invested assets.
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.
ACGL has a Value Score of B. This style score helps find the most attractive value stocks. Back-tested results have shown that stocks with a Style Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or #2, offer better returns.
Other Stocks to Consider
Some other top-ranked stocks from the same space are CNA Financial Corporation CNA, Chubb Limited CB and Berkshire Hathaway (BRK.B), each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
CNA Financial delivered a trailing four-quarter average earnings surprise of 9.24%. The stock has gained 1.2% in a year.
The Zacks Consensus Estimate for CNA’s 2024 earnings indicates an increase of 7.4% from the 2023 estimated figure. The expected long-term earnings growth rate is 5%. The consensus estimate for 2024 earnings has moved up 1.5% in the past 30 days.
Chubb’s earnings surpassed estimates in three of the last four quarters while missing in one, the average being 6.51%. The stock has gained 1.9% in a year.
The Zacks Consensus Estimate for Chubb’s 2024 earnings implies a rise of 7.4% from the 2023 estimated figure. The expected long-term earnings growth rate is 10%. The consensus estimate for CB’s 2024 earnings has moved up 0.4% in the past 60 days.
Berkshire delivered a trailing four-quarter average earnings surprise of 0.20%. In a year, the stock has gained 15.9%.
The Zacks Consensus Estimate for BRK.B’s 2024 earnings indicates an increase of 11.1% from the 2023 estimated figure. The expected long-term earnings growth rate is 7%. The consensus estimate for BRK.B’s 2024 earnings has moved up 2.8% in the past 30 days.
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Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
