Here's Why RLI Corp. (RLI) Stock is an Attractive Bet Now
RLI Corp. RLI has been in investors' good books on the back of a compelling product portfolio, expanded distribution and operational strength, and prudent capital deployment.
The stock has seen its estimates for 2020 and 2021 move up nearly 12.4% and 1.2%, respectively in the past 30 days, reflecting investor optimism.
The company delivered an earnings surprise in three of the last four reported quarters with the average beat being 27.21%. Its earnings per share witnessed an 8-year CAGR (2011-2019) of 4.6%.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $2.63, indicating increase of nearly 3.9% from the year-ago reported figure.
Factors Driving RLI
RLI is a specialty insurance company with more than 50 years of experience in serving diverse niche, property, casualty, and surety markets. It emphasizes on profit maximization and growth over the long term, with a focus on organic opportunities and acquisitions. The company’s growth & financial success have also been driven by product and distribution diversification.
RLI remains focused on investing in new people, products & processes in all markets and maximizing its financial strength & flexibility in a bid to efficiently manage the market. It empowers underwriters to capitalize during hard markets and pull back during soft markets.
This Zacks Rank #2 (Buy) property and casualty insurer continues to benefit from higher revenues driven by higher net premium earned and net investment income across the company’s segments. Revenues increased at a nine-year (2010-2019) CAGR of 6.2%. Compelling product portfolio, new products and business expansion, sustained rate increase, expanded distribution, and operational strength are expected to drive revenues in the days ahead. The Zacks Consensus Estimate for the company’s 2020 and 2021 revenues is pegged at $931 million and $977 million, respectively, indicating an increase of 2.6% and 4.9% from the year-ago reported figure.
RLI has achieved combined ratio below 100 for 24 straight years and beaten the industry ratio by an average of 14 points in the last 10 years. The improvement in combined ratio was backed by contributions from all major product segments. The company expects to be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth.
RLI’s continued focus on multiple initiatives like investing in technology, capitalizing on market opportunities in niche spaces, and maximizing margins are expected to create a strong foundation for future earnings.
Furthermore, investors should be impressed by its stellar record of 45 straight years of dividend increases. The company has increased its dividend at a 10-year (2010-2019) CAGR of 5.1%. Its current dividend yield of 1% is higher than the industry average of 0.5%, which makes the stock an attractive pick for yield-seeking investors. It has $87.5 million remaining under its share repurchase program.
Return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. Its trailing twelve months ROE of 12% betters the industry average of 6.2%. The company's ROE has witnessed 12.4% rise in the past 10 years.
Shares of RLI have gained 4.6% on a year-to-date basis against the industry’s decline of 8.8%. The company’s policy to ramp up its growth profile and capital position should drive shares higher.
Other Stocks to Consider
Investors interested in property and casualty industry may also look at Donegal Group Incorporation DGICA, Fidelity National Financial Inc., FNF and The Allstate Corporation ALL. While Donegal Group and Fidelity National carry a Zacks Rank #1 (Strong Buy), Allstate carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal provides personal and commercial lines of property and casualty insurance to businesses and individuals. The company beat estimates in each of the last four quarters, with the average surprise being 86.44%.
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 surprise being 32.13%.
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 surprise being 25.24%.
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