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Arch Capital (ACGL) Up 34% in a Year: More Room for Growth?

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Shares of Arch Capital Group (ACGL - Free Report) have gained 34% in a year, outperforming the industry's increase of 14.8%. The Zacks S&P 500 composite has rallied 12.2% in the said time frame. With a market capitalization of $17.8 billion, the average volume of shares traded in the last three months was 1.6 million.

Zacks Investment Research
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The rally was largely driven by strong rate increases, new business opportunities and sufficient liquidity.

The property and casualty insurer has a decent earnings surprise history. The bottom line beat estimates in each of the last four quarters, the average being 35.84%.

Arch Capital has a favorable VGM Score of A. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Will the Bull Run Continue?

Estimates for 2022 and 2023 have moved up nearly 2.9% and 3.1%, respectively, in the past 30 days, reflecting investors’ optimism.

The Zacks Consensus Estimate for 2022 and 2023 earnings per share is pegged at $4.51 and $5.02, indicating a year-over-year increase of 25.9% and 11.3%, respectively.

The expected long-term earnings growth rate is pegged at 10%. Arch Capital has an impressive Growth Score of B.

This leading specialty P&C and mortgage insurer continues to witness robust premium revenue growth across its segments. Increases in most lines of business, rate increases, new business opportunities and growth in existing accounts along with a lower level of premiums ceded are expected to drive the performance of the Insurance segment of Arch Capital.

New business opportunities, growth in existing accounts in casualty, property and strong rate increases are expected to drive the performance of the Reinsurance segment. Underwriting income surged more than two-fold in the fourth quarter of 2021.

Riding on growth in Australia’s single-premium mortgage insurance due to the acquisition of Westpac Lenders Mortgage Insurance Limited in the third quarter of 2021 as well as higher U.S. primary mortgage insurance monthly and single premium volume, the Mortgage segment is well poised for growth.

The insurer’s trailing 12-month return on equity (ROE) was 11.4%, which expanded 660 basis points year over year. ROE reflects its efficiency in using shareholders’ funds.

Per the strategic initiatives, Arch Capital actively pursues acquisitions to expand internationally, enhance capabilities, boost operations and diversify the business.  Acquisition of Westpac LMI and Somerset Bridge Group Limited in 2021s are likely to boost the insurer’s insurance solutions and strengthen its position as the only globally diversified insurer of mortgage credit risk.

This property and casualty insurer boasts a solid balance sheet with high liquidity and low leverage. A higher level of premiums is likely to boost cash flow from operations.

Arch Capital currently carries a Zacks Rank #2 (Buy) and has an impressive Value Score of A.  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.

Other Stocks to Consider

Some other top-ranked insurers include Cincinnati Financial (CINF - Free Report) , W.R. Berkley (WRB - Free Report) and American Financial Group (AFG - Free Report) . While Cincinnati Financial and W.R. Berkley sport a Zacks Rank #1, American Financial carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 38.48%. In the past year, the insurer has rallied 29.5%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 5.5% north each in the past seven days.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.53%. In the past year, WRB has rallied 32.6%.

The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 4.7% and 1.7% north, respectively, in the past 30 days. W.R. Berkley’s expected long-term earnings growth rate is pegged at 9%.

The bottom line of American Financial surpassed earnings estimates in each of the last four quarters, the average being 39.58%. In the past year, the insurer has rallied 21.9%.

The Zacks Consensus Estimate for American Financial’s 2022 and 2023 earnings has moved 3.3% and 8.2% north, respectively, in the past seven days.