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Palomar Holdings, Inc. PLMR is well-poised for growth, driven by strong premium retention rates, new partnerships, higher yield on investment portfolio and lower catastrophe losses.
The stock has seen its estimates for 2020 and 2021 move up nearly 1.9% and 2.4%, respectively in the past 60 days, reflecting investor optimism.
The company delivered an earnings surprise in two of the last four reported quarters with the average beat being 8.02%.
Factors Driving Palomar Holdings
Palomar Holdings is well-poised to gain from new business generated with existing partners, strong premium retention rates for existing business, expansion of products’ geographic and distribution footprint and new partnerships, which continue to contribute to premium growth. These have aided the company in maintaining sustained revenue growth over the past few years. Revenues increased at a two-year (2017-2019) CAGR of 38%.
The Zacks Consensus Estimate for the company’s 2020 and 2021 revenues is pegged at $174.1 million and $226.8 million, respectively, indicating year-over-year increase of nearly 56.5% and 30.2%.
Given higher average balance of investments, lower investment expenses, higher yield on investment portfolio, investment of cash generated from operations, and proceeds from January 2020 secondary offering, investment income is expected to improve despite the current low interest rate environment. The metric increased 67.7% over the last two years.
Despite a tough operating environment, Palomar has been able to maintain underlying combined ratio below 95% for consecutive three years. Given lower catastrophe events and improved loss ratio, we expect combined ratio to improve in the near term.
The company strives to protect earnings and balance sheet with a reinsurance program that mitigates the impact of major events on overall profitability. Under its current reinsurance programs, the company provides total coverage of up to $1.4 billion for earthquake events and $600 million for wind events.
Also, 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 17.5% betters the industry average of 6.2%.
Additionally, Palomar boasts a strong balance sheet with strong cash balance and capital infusion of $90.2 million from public offering. Its cash and cash equivalents increased at a two-year CAGR (2017-2019) of 75.3%.
Moreover, shares of this property and casualty insurer, currently carrying a Zacks Rank #3 (Hold), have outperformed the industry in a year’s time. The stock has gained 167.7% against the industry’s decline of 6.3%. We expect higher revenues and a solid capital position to drive shares higher in the near term.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $2.11 and $2.56, indicating year-over-year increase of 21.9% and 21.6%.
Stocks to Consider
Some better-ranked stocks in the property and casualty space may look at Donegal Group Incorporation DGICA, Fidelity National Financial Inc., FNF and Markel Corporation MKL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal surpassed estimates in each of the last four quarters, the average being 86.44%.
Fidelity National surpassed estimates in each of the last four quarters, the average being 32.13%.
Markel surpassed estimates in three of the last four quarters, the average being 50.01%.
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Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report
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