Old Republic International Corporation ORI is set to grow on the strength of its General Insurance as well as Title Insurance segment, solid capital position and effective capital deployment. This Zacks Rank #2 (Buy) primarily specialty commercial lines underwriter carries a favorable VGM Score of B.
The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 21.4% and 6.9% in the past 60 days, reflecting analysts’ optimism. It delivered positive earnings surprise in the last four quarters with the average being 36.72%.
Old Republic International’s unique combination of specialty property and casualty and Title franchises ensures diversification and attractive return on equity. ROE of 9.9% in the trailing 12 months was better than the industry average of 7.5%, reflecting the company’s efficiency in utilizing shareholders’ funds.
Boasting the third-largest title insurer in the country, the company remains focused on expanding presence in the commercial real estate market. Its low single-digit loss ratio has been aiding the business to generate improved income from both growth and margin improvement. Its loss ratio averaged 5.5 for the last 15 years.
Given its niche business focus and low property catastrophe exposure, its General Insurance segment, a significant and consistent driver of income, should continue to deliver sustained growth and stable underwriting profitability. Its general insurance business ranks among the nation’s 50 largest insurers. The segment delivered below a 100 combined ratio in 14 of last 15 years, with 96 average over 15 years. The company targets lower than 95 combined ratio, going forward.
The company has been strengthening its balance sheet with improving cash balance and leverage ratio. Its debt-to-equity ratio of 16.5 at second-quarter 2020 end is lower than the industry average of 44.5. The company enjoys strong rating from credit-rating agencies. Also, 96% of its investment portfolio is investment grade.
With respect to enhancing shareholder value, the company has a stellar record of raising dividends for the last 39 years. Its dividend currently yields 5.4%, better than the industry average of 2.9%, making this an attractive pick for yield-seeking investors.
Shares of Old Republic have lost 29.9% year to date compared with the industry's decline of 25.7%.
Nonetheless, shares of the company are trading at a discount than the industry average. Its price to book value of 0.81X is lower than the industry average of 1.15X. The stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 are the best investment bets.
Other Stocks to Consider
Some other top-ranked insures from the same space are James River Group Holdings JRVR, Assurant AIZ and Horace Mann Educators Corporation HMN.
James River Group delivered an earnings surprise of 33.33% in the last-reported quarter. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant delivered an earnings surprise of 23.32% in the last-reported quarter. It carries a Zacks Rank #2.
Horace Mann Educators delivered an earnings surprise of 52.27% in the last-reported quarter. It carries a Zacks Rank #2.
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