W.R. Berkley Corporation (WRB - Free Report) is well-poised for growth, driven by higher premiums at professional liability, short-tail lines, growing international business and increased income from financial services funds, partially offset by rising expenses.
The stock has seen its estimates for 2021 move up 4.3% in the past 60 days, reflecting investor optimism.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.12, indicating year-over-year increase of nearly 36.3%. The expected long-term earnings growth rate is 9%, which compares favorably with the industry growth rate of 8.8%.
Now let’s see what makes the stock an investors’ favorite.
W.R. Berkley’s net premiums written has been improving over the years on the back of solid performance at its Insurance segment, which accounted for a lion’s share of total net premiums written. We believe higher premiums at other liability, professional liability, short-tail lines, commercial auto and workers' compensation will continue to drive momentum in the near term.
This consistent increase in premiums is likely to drive the company’s top line further that rose at a four-year CAGR (2015-2019) of 2.3%. The Zacks Consensus Estimate for the company’s 2020 and 2021 revenues is pegged at $7.8 billion and $8.3 billion, respectively, indicating year-over-year increase of nearly 4.2% and 5.8%.
Moreover, expanding international operations in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, the Asia-Pacific region, South Africa and Australia are also expected to increase premiums going forward.
Net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several years. The metric witnessed four-year CAGR (2015-2019) of 5.9%. Despite the current low interest rate environment, higher income from investment funds mainly due to increased income from financial services funds and energy funds, increase in real estate, lower investment expenses, increase in arbitrage trading account and equity securities will continue to drive net investment income.
Also, return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. Its trailing twelve months ROE of 7.6% betters the industry average of 6.2%. The company targets long-term ROE of 15%.
Furthermore, investors should be impressed by its stellar record of 15 straight years of dividend increases. The insurer has paid out cash dividends without interruption since 1976. The company has increased its dividend at a 13-year (2006-2019) CAGR of 11.9%. Its current dividend yield of 0.8% is higher than the industry average of 0.4%, which makes the stock appealing to yield-seeking investors.
However, this Zacks Rank #3 (Hold) property and casualty insurer has lost 9.1% year to date compared with the industry’s decline of 7.4%. Also, the company has been witnessing rising expenses due to higher losses and loss expenses, other operating costs and expenses, expenses from non-insurance businesses and interest expense. Such costs tend to weigh on the company’s margins. Notably, in the second quarter, net margin contracted 420 basis points (bps) year over year.
Stocks to Consider
Some-better ranked property and casualty insurers include Donegal Group Incorporation (DGICA - Free Report) , Fidelity National Financial Inc., (FNF - Free Report) and The Allstate Corporation (ALL - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal surpassed estimates in each of the last four quarters, with the average being 86.44%.
Fidelity National surpassed estimates in each of the last four quarters, with the average being 32.13%.
Allstate surpassed estimates in each of the last four quarters, with the average being 25.24%.
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