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Here's Why You Should Hold Argo Group (ARGO) in Your Portfolio

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Argo Group International Holdings (ARGO - Free Report) is poised to grow on its highly profitable business, growth initiatives, an expense initiative program, digitalization and a solid capital position.

Argo Group has a decent track record of beating earnings estimates, having done so in three of the last four quarters and missing in one, delivering an earnings surprise of 937.12%, on average.

Zacks Rank & Price Performance

Argo Group currently carries a Zacks Rank #3 (Hold). Year to date, the stock has rallied 27.6%, outperforming the industry’s and the Finance sector’s growth of 9.7% and 19.5%, respectively. The Zacks S&P 500 composite has increased 23.4% in the said time frame.

Zacks Investment ResearchImage Source: Zacks Investment Research

Growth Projections

The Zacks Consensus Estimate for 2021 earnings is pegged at $3.92, indicating an upside of 712.5% from the year-ago reported figure on 10.5% higher revenues of $2.1 billion. The consensus estimate for 2022 earnings is pegged at $4.20, up 7.2% from the year-ago reported figure on 1.9% higher revenues of $2.1 billion.

The stock carries a favorable Growth Score of B. This style score analyzes the growth prospects of the company.

Style Score

Argo Group is well poised for progress, as is evident from its 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.

Business Tailwinds

Argo Group’s highly profitable businesses Argo Pro, Casualty, Construction, Environmental, Inland Marine and Surety are well poised for growth in attractive markets. These businesses together contribute two-thirds of the U.S. premium base.

Argo Group estimates gross written premium to grow 6-9% and combined ratio between 95 and 97 in 2021.  This U.S.-focused specialty insurer targets double-digit premium growth and a low-90 combined ratio by 2022.

Argo Group remains focused on improving underwriting profitability. Initiatives like terminating portions of an existing book of business, re-pricing portions of another existing book of business and eliminating certain distribution partners who do not meet profitability or volume requirements, among others help it achieve goals. It remains focused on investing in areas where it sees immense potential. The company expects rate increases in mid-single digits.

Argo Group’s International operations are poised for growth given improved rate, combined with a focus on areas with a track record of profitability.

Argo Group is on track with its expense initiative program. Lowering headcount, contract review and prioritization and footprint reduction are aiding it to lower costs. It estimates a 36% expense ratio for 2022.

Argo Group consistently invests in technology to improve operating efficiency and risk selection while reducing overall expenses.

Argo Group expects to generate an operating return on common equity between 6.5 and 8.5% in 2021 and 8-10%+ ROCE by 2022. ARGO boasts a solid balance sheet with modest financial leverage.

Stocks to Consider

Some better-ranked stocks from the same space include First American Financial (FAF - Free Report) , Kinsale Capital Group (KNSL - Free Report) and Cincinnati Financial (CINF - Free Report) .

First American sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 5.5% and 6.3%, respectively, in the past 30 days. First American delivered a four-quarter average earnings surprise of 29.19%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for 2021 and 2022 earnings of Kinsale Capital, sporting a Zacks Rank #1, has moved up 15.2% and 11.7% in the past 30 days. Kinsale Capital delivered a four-quarter average earnings surprise of 37.63%.

Cincinnati Financial carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2021 and 2022 has moved up 0.9% and 5% in the past 30 days. Cincinnati Financial delivered a four-quarter average earnings surprise of 40.05%.

Shares of First American Financial, Kinsale Capital and Cincinnati Financial have gained 45.4%, 3.6% and 35.6%, respectively year to date.