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Why Seasoned Investors are Retaining RenaissanceRe (RNR)

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RenaissanceRe Holdings Ltd. (RNR - Free Report) is well poised to grow on the back of strategic acquisitions and premium growth at both Casualty and Specialty plus Property businesses. Its diversified business and efforts to boost shareholder value bode well.

RenaissanceRe — with a market cap of $7.7 billion — primarily provides property-catastrophe reinsurance to insurers and reinsurers globally. Headquartered in Pembroke, Bermuda, RenaissanceRe also provides certain specialty reinsurance coverage on accident, health, aviation, and satellite concerns, and others in various parts of the United States.

Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.

Rising Estimates

The Zacks Consensus Estimate for RenaissanceRe’s 2021 earnings is pegged at 75 cents per share, indicating a massive year-over-year rise from 12 cents. The company beat earnings estimates twice in the last four quarters and missed the same on the other two occasions.

The consensus estimate for 2021 revenuesstands at $5.5 billion, suggesting a 27% year-over-year rise.

Growth Drivers

RenaissanceRe has been witnessing a positive trend in gross premiums written, which have doubled over a span of five years, driven by premium growth at both its Casualty and Specialty plus Property segments. During 2020 and the first nine months of 2021, gross premiums written improved 20.8% and 33.9%, respectively, year over year. This consistent growth in premiums is likely to drive top-line growth for RenaissanceRe.

The company focuses on acquisitions and business expansions, which provide growth opportunities. It bought Tokio Millennium Re for $1.5 billion to increase the scale and boost the company’s portfolio. In the first nine months of 2021, RNR spent $880.9 million on acquisitions. Also, management doesn’t shy away from divesting non-core assets to streamline its operations. RNR has been undertaking divestitures by getting rid of low-return high-risk businesses. It sold off its U.S-based weather and weather-related energy risk management unit to save the company from the associated uncertainties. We expect such strategic initiatives to enable RNR to focus and grow its core operating business.

RNR has a strong balance sheet. The company’s total debt represents 14.4% of its capital, lower than the industry average of 19.5%. As of Sep 30, 2021, it had cash and cash equivalents worth $1.4 billion, higher than the debt level of $1.1 billion. The company effectively reduced its debt from the 2020-end level. Also, RNR doesn’t have any additional debt maturity until 2025. Thus, the company’s solvency position looks solid.

RenaissanceRe focuses on boosting shareholder value. It has been raising dividends for the past several years and is expected to keep doing so. In February 2021, the company’s board of directors approved a 2.9% hike in the quarterly dividend. Also, during the first nine months of 2021, it repurchased $704.5 million worth of shares. Furthermore, it has a share buyback program of $500 million.

Key Concerns

There are a few factors that are impeding the growth of the stock lately.

Increasing costs are eating into its profits. Total costs and expenses for the first nine months of 2021 were $4,304.9 million, up 45.3% from the year-ago period. Also, it remains exposed to high severity loss associated with catastrophic events on a worldwide basis, which has been affecting its underwriting results. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.

Better-Ranked Players

Some better-ranked players in the Finance space include Ryan Specialty Group Holdings, Inc. (RYAN - Free Report) , Brown & Brown, Inc. (BRO - Free Report) , and Houlihan Lokey, Inc. (HLI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Based in Chicago, IL, Ryan Specialty provides numerous specialty products and solutions for insurance brokers, agents, and others. It acts as a wholesale broker and managing underwriter to provide risk management services. Ryan Specialty’s bottom line for the next year is expected to jump 12.6% year over year to $1.21 per share. RYAN has witnessed two upward estimate revisions in the past 60 days and no movement in the opposite direction.

Headquartered in Daytona Beach, FL, Brown & Brown boasts impressive growth potential driven by organic means and a prudent inorganic story. Its strategic efforts continue to drive commission and fees, and sturdy performance is boosting cash flows. Brown & Brown’s 2022 earnings per share are expected to rise 5.1% year over year to $2.27. It has witnessed one upward estimate revision in the past 30 days compared with none in the opposite direction. BRO beat earnings estimates in each of the last four quarters, with an average of 18.3%.

Houlihan Lokey — headquartered in Los Angeles, CA — provides multiple financial services to clients all over the world. Its growing footprint in Europe and Asia’s investment banking services field will help HLI boost strategic and shareholder value in the coming days. Rising average transaction fees will help HLI increase corporate finance revenues. The full-year 2022 bottom line of Houlihan Lokey is expected to rise 37.7% year over year to $6.36 per share. In the past 30 days, it has witnessed one upward estimate revision and no downward movement. HLI beat earnings estimates in all the last four quarters, with an average of 39.5%.