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Here's Why You Should Retain Palomar (PLMR) in Your Portfolio

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Palomar Holdings, Inc. PLMR should continue to benefit from higher volume of policies written across lines of business, new partnerships and improved loss ratio.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $2.43 and $3.07, indicating year-over-year increase of 594.2% and 26.1%, respectively.

Estimate Revision

The Zacks Consensus Estimate for 2021 has moved 0.4% north in the past 30 days while the same for 2022 has moved 1.3% north in the past 60 days. This should instill investors' confidence in the stock.

Earnings Surprise History

Palomar has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 9.69%.

Zacks Rank & Price Performance

Palomar currently carries a Zacks Rank #3 (Hold). The stock has rallied 13.5% outperforming the industry’s increase of 5.3% in quarter-to-date period.

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Zacks Investment Research

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Return on Equity (ROE)

Annualized adjusted return on equity was 20.8% in the first quarter, up 20 bps year over year. This reflects the company’s efficiency in utilizing shareholders’ fund.

Style Score

It has an impressive Growth Score of A. This style score helps analyze the growth prospects of a company.

Business Tailwinds

Palomar Holdings has been witnessing a surge in premiums since 2016. Higher volume of policies written across lines of business, new business generated with existing partners, strong premium retention rates for existing business, expansion of distribution footprint and new partnerships are likely to pave the way for long-term growth. This in turn has enabled sustainable top-line growth.

The company aims to protect earnings and balance sheet with a reinsurance program that mitigates the impact of major events on overall profitability. The reinsurance program provides total coverage of up to at $1.4 billion for earthquake events and $600 million for hurricane events.

Palomar Holdings estimates 2021 adjusted net income between $64 million and $69 million.

At first-quarter end, it issued a $400 million 144A Torrey Pines Re 144A Catastrophe Bond, a multiyear reinsurance agreement. It provides Palomar with indemnity-based reinsurance that covers earthquake events. The multiyear protection reinforces the robust reinsurance program, expands the extensive panel of reinsurance partners, and benefits policyholders, distribution and investors by providing further transparency into risk transfer protocol.

Palomar generated positive cash flows from operations over the last three years (2018 - 2020). Also, its cash and cash equivalents increased at a four-year CAGR (2016-2020) of 36.2%, which indicates the company has sufficient cash reserves to ensure financial stability. The company also boasts a debt-free balance sheet.

Palomar deploys capital to enhance shareholder value. In March, the board approved the share repurchase program. which authorizes it to repurchase up to $40 million of outstanding shares over a two-year period.

Stocks to Consider

Some better-ranked stocks in the property and casualty space include Alleghany Y, Cincinnati Financial Corporation CINF and First American Financial Corporation FAF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alleghany’s earnings surpassed estimates in each of the last four quarters, the average being 128.63%.

Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 17.63%.

First American surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 20.03%.

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