RenaissanceRe Holdings Ltd. RNR has been in investors’ good books on the back of solid segmental contributions and an encouraging solvency level.
Over the past 60 days, the stock has witnessed its 2020 earnings estimate move 15.7% north.
Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in your investment portfolio.
The company has been witnessing a positive trend in gross premiums written, which has doubled over a span of five years, driven by premium growth at both its Casualty and Specialty plus Property segments. In the first six months of 2020, gross premiums written increased 22.6% year over year to $3.7 billion. This consistent increase in premiums is likely to drive the top line further.
RenaissanceRe also took an initiative to streamline operations by getting rid of its low-return high-risk businesses. It is also buying units to expand business. In March 2019, it bought Tokio Millennium Re for a deal value of $1.5 billion to increase the business scale and strengthen its portfolio. We expect such strategic moves to enable the company to focus on its core operating business and evolve with the same.
Its financial strength also impresses. Its free cash flow, which has been rising over the last few years, reflects its solid capital position. Total debt of the company represents 13.4% of its capital, lower than the industry’s average of 21.3%. Its time interest earned stands at 16.5X, higher than the industry's average of 8.4X. As of Jun 30, 2020, it had cash and cash equivalents worth $1.2 billion, higher than its debt level of $1.1 billion.
However, being a property and casualty insurer, it is always exposed to cat activities, the occurrence of which imparts volatility to its results.
Its long-term growth rate is projected at 25%, above the industry's average of 8.8%.
In the past six months, shares of the company have gained 25.5%, underperforming its industry's growth of 30.3%.
The stock movement looks better than the price performance of other companies in the same space, such as Axis Capital Holdings Limited AXS, First American Financial Corporation FAF and Everest Re Group, Ltd. RE, which have gained 27.4%, 52.2% and 19.4%, respectively, over the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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