National General Holdings Corp NGHC is well-poised for growth given its focus on specialty niches with short-tail risks, technological advancement, and sufficient liquidity
The company has been improving its return on equity over the last few years. Return on equity of 16.9% in the trailing twelve months was better than the industry average of 6.5%, reflecting the company’s efficiency in utilizing shareholders’ fund.
The company’s VGM Score of A is also encouraging. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.
Operating in selective niche markets with short-tail risks, National General deploys proprietary technologies to create an analytical advantage that in turn helps it to retain a competitive edge in the long run. The company continuously introduces products, underwriting frameworks and analytical tools to cater to market demand, thus growing organically.
The company has restructured its portfolio with strategic acquisition and divestiture to garner improved profitability. While its buyout of Farmers Union Insurance gave the company access to new niches, new data and expanded presence in the Midwest, divestment of EuroAccident will help it focus on and divert capital to its A&H division, which is performing so well.
This Zacks Rank #3 (Hold) specialty personal lines insurer has a decent history of delivering positive earnings surprise.
The Zacks Consensus Estimate for 2021 is pegged at $3.21, indicating 16.7% year-over-year growth. The stock carries an impressive Growth Score of A. Growth Score analyzes a company’s growth prospects.
The company has enough liquidity with cash and cash equivalents of $339.8 million and $200 million undrawn from its $340 million line of credit.
National General’s leverage ratio was 25.3 as on Mar 31, 2020, better than the industry average of 27.9. Further, times interest earned ratio has been improving since 2017 and betters the industry average. The improvement in this ratio indicates that the firm will be able to meet current obligations in the near future without any difficulties. The company enjoys strong credit ratings from credit rating agencies.
Also, dividend yield of the company is 0.9%, higher than the industry average of 0.5%, making it an attractive investment option for yield-seeking investors.
Shares of National General have lost 2.2% year to date compared with the industry's decrease of 21.4%.
Stocks to Consider
Some better-ranked companies in the insurance industry are Fidelity National Financial FNF, Old Republic International Corporation ORI and Palomar Holdings PLMR.
Fidelity National provides various insurance products in the United States and offers title insurance, escrow, other title related services and home warranty insurance. It surpassed estimates in each of the last four quarters, with the average positive surprise being 21.13%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Old Republic International engages in the insurance underwriting and related services business primarily in the United States and Canada. The company delivered positive earnings surprise in three of the last four reported quarters with the average beat being 31.72%. The stock sports a Zacks Rank #1.
Palomar Holdings provides specialty property insurance. The company surpassed estimates in two of the last four quarters, the average positive surprise being 10.93%.The stock carries a Zacks Rank #2 (Buy).
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