Back to top

Image: Bigstock

Here's Why W.R. Berkley (WRB) Stock is an Attractive Bet Now

Read MoreHide Full Article

W.R. Berkley Corporation (WRB - Free Report) has been in investors’ good books on the back of its rate improvement, lower non-cat property losses and sufficient liquid position.

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

The stock has seen its estimates for 2021 and 2022 move up nearly 5.2% and 3% in the past 30 days, reflecting investor optimism.

The company has been effectively improving its return on equity (ROE) over the years. ROE of 7.6% in the trailing twelve months was better than the industry average of 5.6%, reflecting the company’s efficiency in utilizing shareholders’ fund.

W.R. Berkley has an impressive Value Score of B. Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space.

This Zacks Rank #2 property and casualty insurer continues to expect growth from its Insurance business, which contributed almost 87.4% of net premium written in 2020. Its premiums should benefit from higher premiums at other liability, professional liability, short-tail lines, commercial auto and workers' compensation.

Growth in net premiums earned, reduced costs, which includes travel and entertainment, and lower expense growth should continue to enhance the expense ratio.

Underwriting income in the reinsurance and monoline excess segment should continue to benefit from rate improvement along with lower claims frequency and non-cat property losses. Moreover, premium growth at this segment continues to gain from higher premiums at casualty reinsurance, property reinsurance and monoline excess.

Given higher income from investment funds due to market value adjustments and arbitrage trading income from investments and special purpose acquisition companies, investment income is expected to improve despite the current low interest rate environment.

The company had strong cash flow from operations of more than $1.6 billion in 2020, which grew more than 41% year over year. In addition, it continued to maintain a cash and cash equivalent position of approximately $2.4 billion, enabling it to maintain a relatively short duration of 2.4 years and high level of liquidity.

W.R. Berkley has paid cash dividends without interruption since 1976. The insurer raised its dividend at a six-year (2014-2020) CAGR of 3.1%. In 2020, it returned total capital of $430 million to shareholders via share repurchases and dividends. Its current dividend yield of 0.7% is better than the industry average of 0.5%, which makes the stock an attractive pick for yield-seeking investors.

However, shares of W.R. Berkley have gained 2.2% year to date compared with the  industry’s increase of 3.9%.

Nevertheless, the Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.66, indicating year-over-year increase of nearly 57.7%. The expected long-term earnings growth rate is 9%, which is better than the industry average of 7.3%.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include Alleghany (Y - Free Report) , RLI Corporation (RLI - Free Report) and Arch Capital Group (ACGL - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany’s bottom line surpassed estimates in two of the last four quarters (missed in the other two), the average beat being 34.08%.

RLI Corporation surpassed earnings estimates in three of the last four quarters, with the average surprise being 153.86%.

Arch Capital surpassed estimates in three of the last four quarters, with the average earnings surprise being 32.14%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>