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ProAssurance (PRA) Up 31.5% in A Year: More Growth Ahead?

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·5 min read
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ProAssurance Corporation’s PRA shares have jumped 31.5% in the past year, outperforming the 11.2% growth of the industry, thanks to the improving demand for insurance services. The company has not only managed to navigate through last year’s coronavirus-induced market volatility but also positioned itself for better returns in the future.

Zacks Investment Research
Zacks Investment Research

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Headquartered in Birmingham, AL, ProAssurance is benefiting from the recovery in volumes. It is a leading property and casualty insurance, as well as reinsurance products provider in the United States. It currently has a market cap of $1.3 billion.

Can It Retain Momentum?

The answer is yes and before we get into the details, let us show you how its 2021 estimates have been faring so far. The Zacks Consensus Estimate for 2021 earnings per share stands at 97 cents, suggesting a significant improvement from last year’s loss of 52 cents. The consensus mark for 2021 revenues is pegged at $1 billion, indicating growth of 16.5% from 2020.

The company beat earnings estimates in each of the trailing four quarters, the average surprise being 233.3%.

Now let’s delve into what’s driving the Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Higher new business written and strong retention rates are supporting ProAssurance’s recovery in gross premiums. The company enjoyed solid gross premiums from 2015 to 2019. Due to lower premiums across the Specialty P&C segment, Workers’ Compensation Insurance segment and the Segregated Portfolio Cell Reinsurance segment, the metric declined in 2020. This year, the figure has bounced back. In the first nine months of 2021, gross premiums written improved 22.5% from the prior-year comparable period. The NORCAL buyout continues to contribute a significant portion to the company’s total gross premiums written.

It also completed the NORCAL Mutual buyout, which strengthened ProAssurance’s focus on Medical Professional Liability Insurance and enhanced its size and scale in the MPLI space, making the combined entity the nation's third-largest specialty writer of liability insurance for healthcare professionals and facilities. ProAssurance has significantly achieved inorganic growth via successful acquisitions and integrations of companies. Its financial size and strength have helped it in this regard.

ProAssurance has implemented numerous operational and structural changes in the organization since last year in an effort to boost operational efficiency. This has been reducing its overall costs, which in turn is bolstering its operating margins and improving expense ratio. Total expenses declined 12.1% in the first nine months of 2021 from the prior-year comparable period. The company’s expense ratio fell across all segments barring Segregated Portfolio Cell Reinsurance during this time period.

Also, PRA boasts of a strong liquidity position on the back of a solid cash position and consistent cash inflows. As of Sep 30, 2021, it had cash and cash equivalents of $203 million, a revolving credit facility of up to $250 million and the possibility of a $50-million accordion feature. The company has robust cash generating abilities in place, which has enabled it to not only pursue growth-related initiatives but also prudently deploy capital through share repurchases and dividend payments. Given PRA’s strong fundamentals, it is well-placed for long-term growth.

Risks

Despite the upside potential, there are a few factors that are holding back the stock from reaching its true potential. Net investment income fell 7.5% year over year in the first nine months of 2021 due to reduced average investment balances and lower yields stemming from investment-grade corporate debt securities. Deteriorating investment portfolio and growing interest expenses are concerning. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.

Other Key Picks

Some better-ranked players in the Finance space include Alerus Financial Corporation ALRS, Blackstone Inc. BX and Houlihan Lokey, Inc. HLI. While Alerus Financial and Blackstone sport a Zacks Rank #1, Houlihan Lokey carries a Zacks Rank #2.

Based in Grand Forks, ND, Alerus Financial provides numerous financial services to clients. Its financial strength is reflected by massive total assets of $3.2 billion at the third quarter-end, which increased 5.4% for the first nine months of 2021. Rising investment securities are likely to keep boosting ALRS’ asset position in the coming quarters.

Alerus Financial’s bottom line for 2021 is expected to jump 11.5% year over year to $2.81 per share. It has witnessed three upward estimate revisions in the past 30 days and no movement in the opposite direction. Alerus Financial beat earnings estimates thrice in the last four quarters and missed once, the average surprise being 23.6%.

Headquartered in New York, Blackstone is well-poised to benefit from its fund-raising ability, revenue mix and inorganic expansion strategies. The company’s fee-earning assets under management (AUM) and total AUM consistently demonstrate strong growth, aided by increasing net inflows. Over the last four years (2017-2020), fee-earning AUM has witnessed a CAGR of 11.9% and total AUM saw a CAGR of 12.5%.

Blackstone’s 2021 earnings are expected to rise 64.2% to $4.35 per share. It has witnessed five upward estimate revisions in the past 60 days compared with none in the opposite direction. BX beat earnings estimates in the trailing four quarters, the average surprise being 23.7%.

Houlihan Lokey — headquartered in Los Angeles, CA — provides multiple financial services to clients all over the world. Its growing footprint in Europe and Asia’s investment banking services field will help HLI boost strategic and shareholder value in the coming days. Rising average transaction fees will aid HLI to increase corporate finance revenues.

For the current year, the bottom line of Houlihan Lokey is expected to rise 37.7% year over year to $6.36 per share. In the past 60 days, it has witnessed four upward estimate revisions and no downward movement. HLI beat earnings estimates in each of the last four quarters, the average surprise being 39.5%.


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Blackstone Inc. (BX) : Free Stock Analysis Report

ProAssurance Corporation (PRA) : Free Stock Analysis Report

Houlihan Lokey, Inc. (HLI) : Free Stock Analysis Report

Alerus Financial (ALRS) : Free Stock Analysis Report

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