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Stewart Information Up 13% in a Year: More Room for Upside?

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Stewart Information Services Corporation (STC - Free Report) shares have gained 12.9% in a year against the industry's decline of 4.4%. The Zacks S&P 500 composite has risen 12.8% in the said time frame. With market capitalization of $1.2 billion, average volume of shares traded in the last three months was 0.3 million.

The company benefits from solid Title insurance business and robust balance sheet position.  It boasts #4 domestic market share in title insurance.

The Zacks Consensus Estimate has moved up 54.2% for 2020 and 29.3% for 2021 over the past 60 days, reflecting analyst optimism. The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Will the Bull Run Continue?

This Zacks Rank #1 (Strong Buy) title insurer remains focused on growing its core Title business and has a sizable merger and acquisition pipeline. Recently, the insurer acquired 57 title offices in the states of Arizona, Colorado and Nevada from ET Investments for $105 million. The buyout is in sync with the acquirer’s strategy to improve scale and competitive position in priority markets where it is underrepresented. Further, the acquisition of United States Appraisals in June 2020 adds scales to existing business as well as provides cross-selling opportunities with adjacent services.

The company operates in the housing market and has been benefiting from positive demographic tailwinds and attractive mortgage rates. It expects purchase volumes to grow through 2022, with strong refinancing volume in 2020 driven by a low-rate environment. Given its focus on Title insurance and the real-estate closing process, the company is well poised to capitalize on the opportunities for long-term growth.

Further, in its concerted effort to lower costs and drive margin improvement, the company announced a $60 million run-rate cost reduction initiative in May 2020.

Stewart Information Services enjoys a strong balance sheet with all-time high statutory surplus of $630 million, access to about $100 million of undrawn revolver capacity and cash & investments of more than $400 million. A stable cash flow supports attractive annual dividend, yielding 2.7%, and betters the industry average of 0.5%.

The Zacks Consensus Estimate for 2020 indicates year-over-year increase of 48%. The company has an impressive Growth Score of A. This style score analyzes the growth prospects of a company.  Back-tested results show that stocks with a Growth Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are the best investment options.

Stewart Information Services’ trailing 12-month return on equity (ROE) of 12.8% is higher than the industry’s ROE of 6.2%, reflecting the company’s ability to utilize its shareholders’ funds efficiently.

Additionally, the stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 are the best investment bets.

Other Stocks to Consider

Some other top-ranked companies in the insurance industry are Donegal Group (DGICA - Free Report) , Markel Corporation (MKL - Free Report) and Fidelity National Financial (FNF - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Donegal Group delivered an earnings surprise of 134.62% in the last-reported quarter.

Markel came up with an earnings surprise of 57.01% in the last-reported quarter.

Fidelity National delivered an earnings surprise of 53.52% in the last-reported quarter.

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