Arch Capital Group Ltd. ACGL is well-poised for growth on strong premium gains, inorganic growth stemming from buyouts and robust liquidity position.
The company has an impressive surprise history of beating estimates in three of the trailing four quarters, the average beat being 6.8%. Also, it has an impressive Growth Score of B, which indicates its growth prospects.
Arch Capital’s fourth-quarter 2019 operating income per share of 74 cents outpaced the Zacks Consensus Estimate by 10.5%. Also, the bottom line soared 60.9% year over year on improved net premiums written. Net premiums written increased 11.8% year over year to $1.5 billion in the fourth quarter, largely fueled by higher premiums written across its Insurance, Reinsurance and Mortgage segments.
Consistent premium growth has been boosting the top-line results of the company, enabling it to maintain sustained revenue growth over the past few years.
Furthermore, Arch Capital has been planning to boost inorganic growth on acquisitions. These buyouts have helped the company expand and diversify globally by enhancing product capabilities, and technology and operations. In November 2019, the company acquired Barbican Group Holdings Limited (Barbican) along with Barbican Managing Agency Limited, Lloyd’s Syndicate 1955, Castel Underwriting Agencies Limited (Castel) and other associated entities. The acquisition of Barbican Group will likely expand Arch Capital’s commitment to both Lloyd’s and the London market, and offer brokers and clients of Arch Capital access to its Insurance and Reinsurance platforms.
Additionally, Arch Capital has consistently maintained a robust capital position in the past years, indicating financial flexibility. Such a strong liquidity position enables the company to pursue new opportunities by retaining its financial strength and flexibility, which is in line with its long-term strategy. For 2019, book value per share rose 22.8% year over year. Also, debt-to-total capital ratio was 13.1% as of Dec 31, 2019, improving 240 basis points from 2018 end.
However, escalating operating expenses have continued to weigh on the company’s operating margin expansion. Such expenses increased 10.2% year over year in 2019 primarily due to higher losses and loss-adjustment expenses, acquisition expenses, other operating expenses, interest expenses, and corporate expenses. Such elevated costs can affect the company’s bottom-line growth going forward.
Shares of the Zacks Rank #3 (Hold) property and casualty insurer has gained 46% in the past year compared with its industry’s growth of 13.1%.
Stocks to Consider
Some better-ranked stocks in the same space are CNA Financial Corporation CNA, Cincinnati Financial Corporation CINF and American Financial Group, Inc. AFG. While CNA Financial currently sports a Zacks Rank #1 (Buy), Cincinnati Financial and American Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CNA Financial, Cincinnati Financial and American Financial surpassed earnings estimates in the last reported quarter by 6.7%, 10.81% and 5.13%, respectively.
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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
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