On Jan 30, Zacks Investment Research upgraded RLI Corp. (RLI) by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
RLI Corp. has been riding on a steady growth momentum since its fourth-quarter and full-year 2013 results. The growth impetus stems from improved core fundamentals throughout 2013, which are cushioned by strong operating leverage and a modest capital position.
RLI Corp. also outperformed the one-year S&P 500 index, which posted an increase of 19.4% against a return of 26.1% clocked by the company. Additionally, this global property and casualty (P&C) insurer delivered positive earnings surprises in the last three consecutive quarters, with an average beat of 28.1%.
On Jan 22, RLI Corp. reported fourth-quarter 2013 operating earnings per share of 72 cents, which noticeably outpaced the Zacks Consensus Estimate of 56 cents by 28.6% and the year-ago quarter number of 44 cents by 64%.
A 14% year-over-year increase in premiums against mere 1.5% hike in expenses drove the underwriting income over three-fold, reflecting lower catastrophe losses and improved combined ratio. Although investment income reduced owing to persistent low interest rates, return on equity (:ROE) increased to 15.3% from 12.4% at 2012-end and operating cash flow escalated more than 261% in 2013.
RLI Corp.’s effort towards new product initiatives and increased exposure in mature product offerings are likely to continue driving top-line growth going forward. Also, incremental return by way of share buybacks and special dividends apart from a consistent regular dividend history boosts investor confidence.
Following its fourth-quarter earnings release, the Zacks Consensus Estimate for both 2014 and 2015 moved up by a penny to $2.32 and $2.28 per share, respectively, in the last 7 days. No downward revision in estimates was witnessed for either year.
More prominently, the Most Accurate estimate for RLI Corp.’s 2014 and 2015 earnings stands at $2.43 and $2.34 a share, resulting in an Earnings ESP of +2.1% and +1.3%, respectively.
Other Stocks to Consider
Other top-ranked insurers in the industry include Platinum Underwriters Holdings Ltd. (PTP), Aspen Insurance Holdings Ltd. (AHL) and Endurance Specialty Holdings Ltd. (ENH). All these stocks carry the same Zacks Rank as RLI Corp.