Back to top

Image: Bigstock

Here's Why Investing in Palomar Holdings (PLMR) is Prudent Now

Read MoreHide Full Article

Palomar Holdings, Inc. (PLMR - Free Report) has been in investors' good books on the back of strong premium retention rates, new partnerships and a higher average balance of investments.

Growth Projections

The Zacks Consensus Estimate for Palomar’s 2022 and 2023 earnings per share is pegged at $2.94 and $3.76, indicating a year-over-year increase of 43.4% and 27.9%, respectively.

Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved 2.4% and 5.6% north, respectively in the past 30 days. This should instill investors' confidence in the stock.

Zacks Rank

Palomar currently carries a Zacks Rank #2 (Buy).

Return on Equity (ROE)

Palomar’s trailing 12-month return on equity (ROE) was 14%, which expanded 1150 basis points year over year. ROE reflects its efficiency in using its shareholders’ funds.

Style Score

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

Business Tailwinds

Palomar’s premiums are likely to gain from a higher volume of policies written across lines of business, strong premium retention rates for an existing business, expansion of products’ geographic and distribution footprint and new partnerships.

Rate increases for commercial products are also likely to contribute to the premium growth of the insurer.

Higher policies written through internal managing general agency, Palomar Insurance Agency are expected to boost the commission and other income of the insurer.

Its investment income should gain from a higher average balance of investments, investment of cash generated from operations as well as higher yields on invested funds.

The above tailwinds in turn will boost Palomar’s revenue growth. The Zacks Consensus Estimate for Palomar’s 2022 and 2023 revenues is pegged at $368.6 million and $499.5 million, respectively, indicating a year-over-year increase of nearly 49.5% and 35.5%.

The solid growth of Palomar’s core products, including earthquake and Hawaii Hurricane, along with the successful scaling of Palomar Excess and Surplus Insurance Company, PESIC should also contribute to top-line growth.

For 2022, Palomar Holdings estimates adjusted net income in the range of $80 million to $85 million, representing 54% year-over-year growth in an adjusted ROE of 90% at the midpoint of the range.

Courtesy of solid operational performance, Palomar has maintained a solid capital position. PLMR boasts a debt-free balance sheet and generated positive cash flows from operations in 2021. This suggests that the insurer has sufficient cash reserves to ensure financial stability.

The stock has lost 17.6% against the industry’s increase of 14.7% in the past year.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Stocks to Consider

Some other top-ranked insurers include United Fire Group (UFCS - Free Report) , Cincinnati Financial (CINF - Free Report) and Kinsale Capital Group (KNSL - Free Report) . While United Fire and Cincinnati Financial sport a Zacks Rank #1 (Strong Buy), Kinsale Capital carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

United Fire’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 275.45%. Year to date, United Fire has gained 21.3%.

The Zacks Consensus Estimate for UFCS’ 2022 and 2023 earnings has moved 122.2% and 76.9% north, respectively, in the past 30 days.

The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 38.48%. Year to date, the insurer has rallied 12.4%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 5.7% and 5.5% north, respectively, in the past 30 days.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 32.04%. Year to date, Kinsale Capital has lost 11.2%.

The Zacks Consensus Estimate for KNSL’s 2022 and 2023 earnings has moved 3.8% and 3.5% north, respectively, in the past seven days.

Published in