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RLI Corp. (RLI) Down 3.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for RLI Corp. (RLI). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RLI Corp. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

RLI Corp. Q2 Earnings Beat Estimates, Revenues Miss

RLI Corp.’s second-quarter 2020 operating earnings of 77 cents per share outpaced the Zacks Consensus Estimate by 71.1%. The bottom line also improved 16.7% from the prior-year quarter.

The company’s results benefited from higher revenues and reduced expenses.

Operational Performance

Operating revenues for the reported quarter totaled $226 million, up 0.4% year over year. This upside can be attributed to higher net premiums earned, partially offset by reduced net investment income. However, the top line missed the Zacks Consensus Estimate by 3.3%.

Gross premiums written inched up 1.4% year over year to $287.2 million. This uptick can be attributed to solid performance of Casualty and Property segments. However, net premiums written of $230.1 million declined 0.4% on a year-over year basis, which is primarily due to lower premiums written in the Casualty and Surety segments.

However, net investment income declined 0.5% year over year to $16.9 million.

Nevertheless, total expenses declined 4.7% year over year to $188.5 million, primarily due to lower loss and settlement expenses, policy acquisition costs, insurance operating expenses and general corporate expenses.

The company reported underwriting income of $24.2 million, which surged 62.4% from the year-ago period courtesy of robust performance of Casualty and Property segments, partially offset by weak performance of the Surety segment.

Combined ratio improved 440 basis points (bps) year over year to 88.4%.

Financial Update

The company exited the second quarter with total investments and cash of $2.6 billion, up 3.3% from 2019 end.

Book value was $23.39 per share as of Jun 30, 2020, up 5.5% from the figure as of Dec 31, 2019.

Long-term debt was $149.4 million, which inched up marginally from 2019 end.

Statutory surplus decreased 0.9% to $1.02 billion as of Jun 30, 2020 from the figure as of Dec 31, 2019.

Return on equity was 17%, reflecting a contraction of 370 bps year over year.

Net cash flow from operations was $89.5 million in the quarter under review, up 20.1% from the year-ago period.

Dividend Update

On Jun 19, the company paid out a cash dividend of 24 cents per share, which indicates a hike of 4.3% from the prior dividend payout of 23 cents. Dividends totaled more than $529 million in the last five years.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, RLI Corp. has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise RLI Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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