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Why Is Markel (MKL) Up 5.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Markel (MKL). Shares have added about 5.1% in that time frame, outperforming the S&P 500.

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

Markel Q1 Earnings and Revenues Miss Estimates, Up Y/Y

Markel Corporation reported first-quarter 2021 earnings of $10.12 per share, which missed the Zacks Consensus Estimate by about 11%. However, the bottom line rebounded from the year-ago loss of $8.92 per share.

Results accounted for strong, profitable growth across underwriting operations, focus on increasing operational efficiencies, strong performance at Markel Ventures as well as positive momentum in investment operations.

Quarterly Operational Update     

Total operating revenues of $2.4 billion missed the Zacks Consensus Estimate by 3.3%. The top line rose 17.6% year over year on higher premiums earned, services and other revenues, and net investment income. The top line benefited from significant contributions from Lansing Building Products, which was acquired in the second quarter of 2020.

Earned premiums increased 13% in the quarter, reflecting continued growth in gross premium volume from new business and more favorable rates.
Net investment income increased 9.4% year over year to $96.6 million in the first quarter.

Total operating expenses of Markel increased 0.6% year over year to $2.2 billion primarily due to higher, underwriting, acquisition and insurance expenses, services and other expenses, amortization of intangible assets. Markel’s combined ratio improved 2400 basis points (bps) year over year to 94 in the reported quarter.

Segment Update

Insurance: Gross premium increased 16% year over year to $1.6 billion driven by new business and more favorable rates within  professional liability, general liability, marine and energy and personal lines product lines.

Underwriting profit came in at $116.9 million, rebounding from the yearago loss of $206.4 million. Combined ratio improved 2800 bps year over year to 90.6.

Reinsurance: Gross premiums increased 4% year over year to $532.5 million, driven by new business within general liability and professional liability product lines, partially offset by lower gross premiums within property product lines.

Underwriting loss of $23.2 million was narrower than $34 million loss incurred in the year-ago quarter. Combined ratio improved 590 bps year over year to 109.1 in the first quarter.

Markel Ventures: Operating revenues of $706.6 million improved 38.2% year over year. Operating income of $51.5 million increased 23% year over year.

Financial Update

Markel exited the first quarter with cash and cash equivalents and restricted cash and cash equivalents (invested assets) of $4.5 billion as of Dec 31, 2020, down 13.8% from 2020 end. Debt balance increased 2.3% year over year to $3.6 billion as of Dec 31, 2020.

Book value per share increased 3.1% from year-end 2020 to $913.33 as of Mar 31, 2021. Net cash from operating activities was $318.1 million in the first quarter of 2021, up nearly five-fold year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Markel has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Markel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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