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Here's Why You Should Hold Palomar (PLMR) in Your Portfolio

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Palomar Holdings, Inc. (PLMR - Free Report) should continue to benefit from new business generation, strong premium retention rates and new partnerships across multiple lines of business.

Growth Projections

The Zacks Consensus Estimate for Palomar’s 2021 and 2022 earnings per share is pegged at $1.98 and $2.95, indicating a year-over-year increase of 465.7% and 49.1%, respectively.

Zacks Rank & Price Performance

Palomar currently carries a Zacks Rank #3 (Hold). The stock has lost 10.7% compared with the industry’s increase of 9.7% in the year-to-date period.

Zacks Investment ResearchImage Source: Zacks Investment Research

Return on Equity (ROE)

Palomar’s ROE for the trailing 12 months is 8.8%, better than the industry average of 5.6%, reflecting efficiency in utilizing shareholders’ fund. 

Style Score

Palomar 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.

Business Tailwinds

Higher volume of policies written across its lines of business, owing to new business generated with existing partners, strong premium retention rates for existing businesses, expansion of distribution footprint and the execution of new partnerships across multiple lines of business should drive premium growth, which in turn will boost Palomar’s revenue growth.

The Zacks Consensus Estimate for Palomar’s 2021 and 2022 revenues is pegged at $246.6 million and $392.7 million, respectively, indicating a year-over-year increase of nearly 49.2% and 59.2%.

For 2021, Palomar Holdings estimates adjusted net income in the range of $51.2 million to $52.7 million. For the fourth quarter, PLMR expects the same in the bracket of $17 million to $18.5 million.

A higher average balance of investments and higher yields on recently invested funds should benefit the net investment income.

Palomar continues to broaden its offerings with the launch of Excess and Surplus residential flood product to drive geographic expansion and capitalize on National Flood Insurance Program (NFIP) Risk Rating 2.0 dislocation.

In September 2021, Palomar Holdings entered the fronting sector of the U.S. insurance market. PLMR-FRONT is a logical extension of its franchise in the specialty insurance market and is likely to generate new income streams and risk-adjusted returns for shareholders. Palomar will benefit from access points to better lines of business, limited incremental investment and new sources of fee income. Palomar Holdings will be well poised to enter new markets as a non-risk bearing insurance entity with the flexibility to selectively participate in risk.

Palomar generated positive cash flows from operations over the last three years (2018 - 2020). Also, its growing cash and cash equivalents indicates that the company has sufficient cash reserves to ensure financial stability. The company also boasts a debt-free balance sheet.

In March 2021, Palomar’s board authorized a share buyback program to return more value to investors. The latest authorization will enable it to spend up to $40 million to repurchase its common stock through Mar 31, 2023.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are Kinsale Capital (KNSL - Free Report) , First American Financial (FAF - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) . While Kinsale Capital and First American sport a Zacks Rank #1 (Strong Buy), Cincinnati Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.63%. In the past year, Kinsale Capital has lost 11.2%. The Zacks Consensus Estimate for 2021 and 2022 has moved 13.8% and 11.7% north, respectively, in the past 60 days.

Higher submission activity from brokers across most lines of business, higher rates on bound accounts, favorable market conditions, and high retention rates arising from contract renewals are likely to drive Kinsale Capital’s premium income.

Cincinnati Financial surpassed estimates in each of the last four quarters, the average earnings surprise being 40.05%. In the past year, Cincinnati Financial has rallied 43.6%. The Zacks Consensus Estimate for 2021 and 2022 has moved 2.5% and 5% north, respectively, in the past 60 days.

Cincinnati Financial is well poised to gain from premium growth initiatives, price increases and a higher level of insured exposures.

The bottom line of First American surpassed estimates in each of the last four quarters, the average being 29.19%. In the past year, First American has rallied 47.1%. The Zacks Consensus Estimate for 2021 and 2022 has moved 0.6% and 1.5% north, respectively, in the past 60 days.

First American is expected to benefit from higher direct premium and escrow fees, solid cash position, effective capital deployment and strategic acquisitions.

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