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Palomar (PLMR) Stock Gains 18.2% YTD: More Room for Growth?

Shares of Palomar Holdings, Inc. PLMR have gained 18.2% year to date against the industry's decline of 2.2%. The Zacks S&P 500 composite has decreased 15.6% in the said time frame. With a market capitalization of $1.9 billion, the average volume of shares traded in the last three months was 0.1 million.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The rally was driven mainly by strong premium retention rates, new business and a higher average balance of investments.

This Zacks Rank #3 (Hold) insurer has a solid track record of beating earnings estimates in five of the last seven quarters while missing in one and matching the same in the other.

PLMR has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, the best growth and the most promising momentum.

Can PLMR Stock Retain the Momentum?

The Zacks Consensus Estimate for Palomar’s 2022 earnings is pegged at $3, indicating a 46.3% increase from the year-ago reported figure on 45.3% higher revenues of $358.1 million. The consensus estimate for 2023 earnings is pegged at $3.85, indicating a 28.2% increase from the year-ago reported figure on 33.7% higher revenues of $478.6 million.

Palomar’s trailing 12-month return on equity (ROE) was 14.9%, which expanded 1070 basis points year over year. ROE reflects its efficiency in using its shareholders’ funds.

Palomar’s premiums are likely to gain from a higher volume of policies written across the lines of business, driven by new business generated with existing partners, strong premium retention rates for existing businesses, expansion of the distribution footprint as well as new partnerships.

Higher policies written through the internal managing general agency, Palomar Insurance Agency are expected to boost the commission and other income of the insurer.

Investment income witnessed a five-year CAGR (2017-2021) of 33.7%. High-quality fixed income securities, a higher average balance of investments and higher yields on invested assets should continue to drive the momentum going forward.

Palomar Excess and Surplus Insurance Company's growth is likely to be driven by its main products, commercial earthquake, commercial all risk, and builder’s risk.

For 2022, Palomar Holdings estimates to generate between $80 million and $85 million of adjusted net income, which indicates 54% year-over-year growth and adjusted ROE of 19% at the mid-point of the range.

Banking on solid operational performance, Palomar has maintained a solid capital position. PLMR boasts a debt-free balance sheet and generated positive cash flows from operations in the first half of 2022 due to net income and a decrease in net operating assets.

Banking on a solid capital position, in January 2022, Palomar’s board of directors authorized a new two-year share buyback program of $100 million through Mar 31, 2024, of which $79.7 million remains under authorization after buying back $20 million worth of shares in the first half of 2022.

The Zacks Consensus Estimate for 2022 and 2023 has moved 4.5% and 1.3% north, respectively, in the past 30 days, reflecting analysts’ optimism.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. ACGL, American Financial Group, Inc. AFG and ProAssurance Corporation PRA, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Arch Capital surpassed earnings estimates in three of the last four quarters and missed in one, the average being 33.64%. Year to date, the insurer has rallied 4.6%.

The Zacks Consensus Estimate for Arch Capital’s 2022 and 2023 earnings has moved 5.7% and 4.9% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.09%. Year to date, American Financial has lost 4.1%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 3.1% and 3.3% north, respectively, in the past 30 days.

The bottom line of ProAssurance surpassed earnings estimates in three of the last four quarters and missed in one, the average being 150.9%. Year to date, the insurer has lost 12.7%.

The Zacks Consensus Estimate for ProAssurance’s 2022 and 2023 earnings has moved 25.9% and 13.9% north, respectively, in the past 30 days.


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