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Markel (MKL) Up 5.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Markel (MKL - Free Report) . Shares have added about 5.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Markel Q4 Earnings and Revenues Surpass Estimates

Markel Corporation reported fourth-quarter 2020 earnings of $15.83 per share, which beat the Zacks Consensus Estimate by 75.1%. Moreover, the bottom line increased 140.9% year over year.

The company witnessed higher premiums at Insurance and Reinsurance Segments and increased profit at Markel Ventures, which were partially offset by higher expenses and lower net investment income.

Full-Year Highlights

For 2020, Markel reported net income of $55.63 per share, which decreased 56.9% year over year. Total operating revenues of $9.1 billion trumped the consensus mark by 1.8% and also improved nearly 15% year over year.

Combined ratio deteriorated 400 basis points (bps) on a year-over-year basis to 98% in the quarter under review.

Quarterly Operational Update      

Total operating revenues of $2.5 billion beat the Zacks Consensus Estimate by 3.6%. The top line rose 22.2% year over year on higher premiums, services and other revenues, partly offset by lower net investment income.

Net written premiums increased 13.7% year over year to $1.4 billion, primarily driven by higher premiums at Insurance segment and Reinsurance segment.
Net investment income declined 13.2% year over year to $97.6 million in the fourth quarter.

Total operating expenses of Markel increased 20.9% year over year to $2.21 billion primarily due to higher losses and loss adjustment expenses, underwriting, acquisition and insurance expenses, services and other expenses, amortization of intangible assets.

Markel’s combined ratio improved 400 basis points (bps) year over year to 89% in the reported quarter.

Segment Update

Insurance: Net written premiums were up 13.7% year over year to $1.29 billion in the quarter under review. Underwriting profit came in at $165.3 million, which increased 28.3% year over year. Combined ratio improved 200 bps year over year to 87% in the quarter under discussion.

Reinsurance: Net written premiums increased 16.3% year over year to $139 million. Underwriting loss was $31.4 million, narrower than $45.7 million incurred in the year-ago quarter. Combined ratio improved 2400 bps year over year to 96% in the fourth quarter.

Markel Ventures: Profit of $53.3 million increased 149.6% year over year.

Financial Update

Markel exited the fourth quarter with investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) of $24.9 billion as of Dec 31, 2020, up 12.1% year over year. Debt balance decreased 1.4% year over year to $3.48 billion as of Dec 31, 2020.

Book value per share increased 10.3% from year-end 2019 to $885.13 as of Dec 31, 2020. Net cash from operating activities was $1.7 billion in 2020, up 30.8% year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 10.21% due to these changes.

VGM Scores

Currently, Markel has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Markel has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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