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Reasons Why Arch Capital (ACGL) Stock is a Solid Pick Now

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Arch Capital Group Ltd. (ACGL - Free Report) has been gaining momentum over the past many quarters on the back of rate increases, new business opportunities, lower expense ratio and higher invested assets.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $3.24 and $4.16, indicating year-over-year increase of 138.2% and 28.3%, respectively.

Estimate Revision

Estimates for 2021 and 2022 have moved up nearly 3.5% and 1.9%, respectively, in the past 30 days that reflects investors’ optimism.

Earnings Surprise History

Arch Capital has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 14.28%.

Zacks Rank & Price Performance

Arch Capital currently carries a Zacks Rank #2 (Buy). In the past year, the stock has rallied 29.2% compared with the industry’s increase of 27.5%.

Zacks Investment Research
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Style Score

The company has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

It 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 offer the best opportunities in the value investing space.

Business Tailwinds

Top-line growth continues to be driven by increased premiums and higher net investment income across the company’s Insurance and Reinsurance segments.

Increases across most lines of business, due in part to rate increases, new business opportunities and growth in existing accounts will continue to boost the performance of the Insurance segment of Arch Capital.

The Reinsurance segment continued to witness strong growth across most lines of business. In casualty and other specialty lines, strong rates increases and growth in new accounts are expected to boost the top line. Arch Capital expects the ongoing rate improvements to be reflected in underwriting results over the coming quarters.

It witnessed the sixth consecutive quarter of rate increases in the second quarter. The insurer expects to witness improved underwriting margins owing to the compounding of rate-on-rate increases and rebalancing of mix of business for the coming quarters. Production increased across most lines of business and geography areas with improvements in pricing.

Higher level of premium earned, lower loss ratios attributable to rate increases as well as improved underwriting performance and lower expense ratio improving underlying accident year combined ratio should continue to improve the underlying combined ratio.

Growth in invested assets, higher level of income on fund investments, reinvestment of fixed income securities at higher available yields and the shift from municipal bonds to corporates are likely to drive net investment income in the near term.

Arch Capital boasts an impressive solvency level. Its debt to capital in the second quarter improved 90 basis points from the fourth quarter end. Also, higher level of premiums continue to boost the cash flows from operation.

Courtesy of solid financial strength, the insurer engages in capital deployment to enhance its shareholders value. Currently, it has $431.2 million remaining under its share repurchase authorization.

Other Stocks to Consider

Some other top-ranked stocks from the same space include Cincinnati Financial Corporation (CINF - Free Report) , Everest Re Group, Ltd. and Fidelity National Financial, Inc. (FNF - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 36.01%.

The bottom line of Everest Re surpassed estimates in two of the last four quarters and missed in the other two, the average being 20.33%.

Fidelity National’s earnings surpassed estimates in each of the last four quarters, the average being 37.32%.

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