Here's Why You Should Hold Selective Insurance (SIGI) Stock
Selective Insurance Group, Inc. SIGI has been benefiting from strong renewal, fuel price increases, exposure growth, favorable excess and surplus (E&S) lines marketplace conditions, higher income earned on fixed-income securities portfolio and prudent capital deployment.
Growth Projections
The Zacks Consensus Estimate for Selective Insurance’s 2023 earnings is pegged at $6.10 per share, indicating a 21.2% increase from the year-ago reported figure on 14.5% higher revenues of $4.21 billion. The consensus estimate for 2024 earnings is pegged at $7.61 per share, indicating a 24.7% increase from the year-ago reported figure on 10.3% higher revenues of $4.64 billion.
The expected long-term earnings growth rate is pegged at 21.4%, outperforming the industry average of 12.1%.
Zacks Rank & Price Performance
SIGI currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 24.1%, outperforming the industry’s increase of 18.2%.
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Return on Equity (ROE)
ROE is a profitability measure reflecting how effectively the company is utilizing its shareholder’s fund. Annualized non-GAAP operating return on common equity was 12.2% in the first half of 2023, which expanded 10 basis points year over year. Based on guidance for 2023, SIGI remains on track to deliver solid results for 2023 with operating ROE with above the 12% target.
Business Tailwinds
Strong renewal, fuel price increases, exposure growth, solid retention rates and higher new business growth in standard commercial and E&S lines should drive premium growth.
Steady betterment of premiums has resulted in top-line improvement. Over the past six years (2017-2022), total revenues witnessed a CAGR of 6.3% and another 19% in the first half of 2023.
The E&S Lines segment of Selective Insurance is likely to improve because of renewal pure price increases, higher direct new business and favorable E&S Lines marketplace conditions.
Given impressive investment results, SIGI projects an after-tax net investment income of $300 million, which includes $30 million of after-tax net investment income from alternative investments. Higher income earned on fixed-income securities portfolio due to improved book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment are likely to drive the metric.
Riding on a solid capital position, the company has been hiking dividends, which registered a nine-year (2015-2023) CAGR of nearly 8.8%. The insurer also has an $84.2 million share buyback authorization under its kitty. Riding on strong financial and operating performance, the board has approved a 7% hike in the quarterly cash dividend in November 2022. Such steadfast endeavors buoy confidence among investors, making it an attractive pick for yield-seeking investors.
The Zacks Consensus Estimate for Selective Insurance’s 2024 earnings has moved 0.3% north in the past 30 days. This should instill investors' confidence in the stock.
Being a property and casualty insurer, SIGI is exposed to catastrophe losses stemming from natural disasters and weather-related events. For 2023, Selective Insurance estimates GAAP combined ratio of 96.5%, including net catastrophe losses of 6 points, up from prior guidance of 4.5 points.
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. ACGL, Axis Capital Holdings Limited AXS and Kinsale Capital Group, Inc. KNSL. While Arch Capital and Axis Capital sport a Zacks Rank #1 (Strong Buy) each, Kinsale Capital carries Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 26.83%. In the past year, ACGL has rallied 61.4%.
The Zacks Consensus Estimate for ACGL’s 2023 and 2024 earnings per share is pegged at $6.73 and $7.43, indicating a year-over-year increase of 38.1% and 10.4%, respectively.
Axis Capital has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 9.75%. In the past year, AXS has gained 1.5%.
The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $8.41 and $9.31, indicating a year-over-year increase of 44.7% and 10.7%, respectively.
Kinsale Capital beat estimates in each of the last four quarters, the average being 14.88%. In the past year, KNSL has rallied 46.3%.
The Zacks Consensus Estimate for 2023 and 2024 has moved 8.5% and 7.8% north, respectively, in the past 30 days, reflecting analysts’ optimism.
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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
