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Reasons Why Palomar Holdings (PLMR) Stock is a Solid Pick Now

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Palomar Holdings, Inc. (PLMR - Free Report) should continue to benefit from strong premium retention rates for existing businesses, higher yields on invested funds and a robust capital position.

Growth Projections

The Zacks Consensus Estimate for Palomar’s 2022 earnings is pegged at $2.96, indicating a 44.4% increase from the year-ago reported figure on 51.8% higher revenues of $374.3 million. The consensus estimate for 2023 earnings stands at $3.81, indicating a 28.8% increase from the year-ago reported figure on 37.2% higher revenues of $513.4 million.

Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved 0.7% and 1.3% 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 13.5%, which expanded 930 basis points year over year. ROE reflects its efficiency in using its shareholders’ funds.

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.

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

By virtue of a higher average balance of investments, investment of cash generated from operations as well as higher yields on invested funds, investment income is likely to improve.

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

For 2022, Palomar expects to generate between $80 million and $85 million of adjusted net income, implying 54% year-over-year growth and an adjusted ROE of 19% at the midpoint of this 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 the first quarter of 2022 due to net income and a decrease in net operating assets.

Banking on a solid capital position, in January 2022, Palomar authorized a new two-year share buyback program of $100 million through Mar 31, 2024, of which $87 million remains under authorization after buying back $13 million worth shares in the first quarter of 2022.

The stock has lost 14.7% compared with the industry’s decrease of 0.5% in the past year.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Stocks to Consider

Some other top-ranked stocks in the property and casualty insurance industry are W.R. Berkley Corporation (WRB - Free Report) , RLI Corp. (RLI - Free Report) and HCI Group, Inc. (HCI - Free Report) . While W.R. Berkley and RLI Corp. sport a Zacks Rank #1 (Strong Buy), HCI Group carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley's stock has increased 34.8%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 4.9% and 4.1% north, respectively, in the past 30 days.

RLI has a solid track record of beating earnings estimates in each of the last seven quarters. In the past year, RLI stock has increased 13.9%.

The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.

The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 16.1%.

The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 280.9% and 75%, respectively.