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Trupanion (TRUP) Banks on Geographical Expansion Amid Cost Woes

Trupanion Inc.’s TRUP focus on pets’ health and well-being in an underpenetrated pet insurance market, product innovations, geographical expansion and a solid capital position poise it well for growth.

Spending on pets’ health is on the rise in North America, with a total addressable market of $38.4 billion. This pet insurer operates in a large but underpenetrated market. Thus, TRUP has a wider scope to ramp up its growth. The insurer has a stellar track of delivering more than 20% top-line growth for the last 59 quarters.

The average pet now stays with Trupanion for 79 months, up from 78 months in the year-ago period, ensuring consistent revenue generation. The higher retention rates indicate customers’ fondness for TRUP’s products.

Trupanion remains focused on growing its addressable market by 40% by 2025-end, with the addition of 10,000 international hospitals. This will increase its overall market from 25,000 in North America to 35,000 globally. This, in turn, should help TRUP expand its active hospital base.

Trupanion stated that over the long term, companies that can invest in innovation and expand their addressable market are poised to be successful. TRUP intends to expand globally by entering Japan and Europe.

All these together should help TRUP achieve its target to sequentially grow subscription-adjusted operating income in the remaining quarters of 2022. For the fourth quarter of 2022, TRUP estimates subscription-adjusted operating income to grow in the range of 14-15%. Per a five-year plan, the insurer targets an adjusted operating margin of 25% by 2025. In 2022, TRUP estimates adjusted operating income to grow in the range of 15% to 20%.

Trupanion’s continuous new product development and international expansion are well supported by its solid financial position. These endeavors should help TRUP extend its moat and expand the addressable market in the long run.

However, costs of care are on the rise. Trupanion estimates the cost of care for many veterinary hospitals to increase 10% to 15% for at least the next three to four years.

TRUP has been witnessing higher claims processing costs as well as deterioration in loss ratio.

Nonetheless, banking on operational excellence, TRUP has a decent history of delivering an earnings surprise in three of the last four reported quarters, missing in one, the average being 44.79%.

Some Key Industry Players

Some key stocks from the insurance industry include Employers Holdings Inc. EIG, Unum Group UNM and AXIS Capital Holdings Limited AXS.

Employers Holdings delivered a four-quarter average earnings surprise of 9.80%. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting.

Unum Group delivered a four-quarter average earnings surprise of 30.13%. CINF should continue to grow, banking on high persistency levels in core business lines, strong sales volume along and solid benefits experience. Unum expects 2022 premiums to grow about 2%. Adjusted operating EPS is expected to grow 15-20%.

AXIS Capital delivered a four-quarter average earnings surprise of 48.08%. The repositioning of its portfolio in markets offering profitable growth, lower volatility, strong market presence, better pricing, margin expansion and effective capital deployment poise Axis Capital well for growth.

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