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Stewart Information Services Corporation STC is well-poised for growth, riding on its solid Title insurance business and a sturdy financial position. The company currently carries an impressive VGM Score of A.
The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 54.2% and 29.3%, respectively in the past 30 days, reflecting analysts’ optimism. The consensus estimate for 2020 indicates a 48% increase from the year-ago reported number. Return on equity of 12.7% in the trailing 12 months was better than the industry average of 6.2%, reflecting the company’s efficiency in utilizing shareholders’ funds.
Thanks to its operational excellence, this Zacks Rank #1 (Strong Buy) title insurer has a Growth Score of A. It boasts #4 domestic market share in title insurance, with 10% share in 2019. Its international operations are spread across the United Kingdom, Europe, Mexico, the Caribbean, and Australia.
The company operates in the housing market and has been benefiting from positive demographic tailwinds and attractive mortgage rates. It expects purchase volumes to grow through 2022, with strong refinancing volume in 2020 driven by a low rate environment. Stewart Information Services is well poised to capitalize on the opportunities for long-term growth, given its focus on Title insurance and the real-estate closing process.
It remains focused on growing its core Title business and thus has a sizable merger and acquisition pipeline. The acquisition of United States Appraisals in June 2020 adds scales to existing business as well as provides cross-selling opportunities with adjacent services. The acquisition is expected to generate revenue and expense synergies while enhancing the technology platform.
The title insurer is attempting to lower costs and thus announced a new $60 million run-rate cost reduction initiative in May 2020. Expense discipline has been aiding the company to effectively improve net margin.
Stewart Information Services boasts a strong balance sheet with all-time high statutory surplus of $630 million with access to about $100 million of undrawn revolver capacity.
Further, the cash balance of this Zacks Rank #1 (Strong Buy) insurer increased over the last few years. It exited the second quarter with total cash and investments of more than $400 million, above regulatory requirements. It enjoys strong rating from credit rating agencies.
Its stable cash flow profile supports an attractive annual dividend, yielding 2.9%, and betters the industry average of 0.5%, making this an attractive pick for yield-seeking investors.
Shares of Stewart Information Services have gained 2.8% year to date against the industry's decline of 10.8%.
Also the stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are the best investment bets.
Other Stocks to Consider
Some other top-ranked companies in the insurance industry are Donegal Group DGICA, The Allstate Corporation ALL and Fidelity National Financial FNF, each sporting Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal Group delivered a 134.62% earnings surprise in the last reported quarter.
Allstate came up with a 74.47% earnings surprise in the last reported quarter.
Fidelity National delivered a 53.52% earnings surprise in the last reported quarter.
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