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Everest Re Group, Ltd. RE has been in investors’ good books on the back of premium growth, higher investment income and prudent capital deployment.
The stock carries a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.
Everest Re’s return on equity was 8.5% in the trailing 12-month period, higher than the industry average of 6.5%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.
The company has an impressive surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 30.89%.
Estimates for Everest Re have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for both 2020 and 2021 earnings per share has moved up 0.2% in the said time frame.
Everest Re has been witnessing a positive trend in gross premiums written, driven by premium growth at both its Reinsurance and Insurance segments. This upside is evident from its two-year CAGR (2017 - 2019) of 10.4%, primarily led by strong segmental results. This consistent increase in premiums is likely to drive the company’s top line further, which grew at a two-year CAGR (2017-2019) of 60.8%. New lines of business, increasing treaty casualty writings and property business are expected to drive the momentum going forward.
Net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several years. The metric witnessed two-year CAGR (2017-2019) of 11.5%. Despite the current low interest rate environment, higher yields on fixed income portfolio and improved limited partnership income will continue to drive net investment income.
Further, the company’s debt level has remained stable over the past few years. Its cash and cash equivalents increased at a four-year CAGR (2015-2019) of 3.1%. This suggests that the company has sufficient cash reserves to meet its short-term debt obligations. Also, long-term debt to capital of 7.4% compares favorably with the industry’s measure of 21.8%.
Everest Re’s times interest earned, a measure to identify the company ability to service debt, of 21.2 is good when compared with the industry’s average of 4.3, implying that its earnings are sufficient to cover interest obligations.
Also, by virtue of its solid capital position, the company is able to return value to shareholders via dividend hikes and share buybacks Its dividend has witnessed a five-year CAGR (2014-2019) of 15.6% and currently yields 2.9%, which compares favorably with the industry average of 0.5%. This makes the stock attractive for yield seeking investors.
Shares of this Zacks Rank #3 (Hold) property and casualty insurer have lost 13.4% in a year’s time, compared with the industry’s decline of 13%. Nevertheless, the company’s policy to ramp up its growth profile and capital position should help drive shares higher.
However, Everest Re has been witnessing high costs due to rise in incurred losses and loss adjustment expenses, commission, brokerage, taxes and fees and other underwriting expenses. Such costs tend to weigh on the company’s margins. Also, the company is exposed to catastrophe losses, which induce underwriting volatility.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $24.17, indicating increase of nearly 41.1% from the year-ago reported figure.
Stocks to Consider
Some better-ranked insurance stocks include National General Holdings Corp. NGHC, The Allstate Corporation ALL and Palomar Holdings Inc. PLMR. While National General Holdings carries a Zacks Rank #1 (Strong Buy), Allstate and Palomar carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
National General is a specialty personal lines insurance holding company, providing various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 5.68%.
Allstate provides property and casualty, and other insurance products in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average positive surprise being 18.45%.
Palomar offers personal and commercial specialty property insurance products, including residential and commercial earthquake. It surpassed estimates in two of the last four quarters, with the average positive surprise being 10.93%.
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