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Employers Holdings (EIG) Up 23% in 3 Months: More Room for Rally?

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Employers Holdings, Inc.’s (EIG - Free Report) shares have rallied 23.1% in the past three months, outperforming the industry’s growth of 20.6%. The Finance sector and the Zacks S&P 500 composite have increased 13.3% and 7.5%, respectively, in the same time frame. With a market capitalization of $1.1 billion, the average volume of shares traded in the last three months was about 0.1 million.

Niche focus on low-to-medium hazard risk small businesses, better pricing, investment in technology, solid capital position and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer. This mono-line writer of workers’ compensation (WC) has a decent history of delivering earnings surprises in three of the last four reported quarters.

The trailing 12 months return on equity (ROE), a measure of how efficiently a company utilizes its shareholders' fund, is 7.3%, better than the industry average of 5.7%.

Can it Retain the Bull Run?

The Zacks Consensus Estimate for 2023 earnings stands at $2.90, suggesting an increase of 18.4% on 7.8% higher revenues of $812.8 million. This insurer, with its niche focus on low-to-medium hazard risk small businesses, is well poised to capitalize on the growth opportunities offered by the $50 billion-plus market.

EIG’s growth strategy outlines accelerating premium growth by expanding underwriting appetite while managing fixed expenses. Banking on disciplined underwriting, the insurer boasts a solid track of favorable reserve development.

The insurance industry has been witnessing accelerated digitalization. EIG stays focused on investing in technology and digitalization to scale up its business.

EIG has a superior quality, highly liquid investment portfolio that supports financial flexibility. Insurers are beneficiaries of an improving rate environment. The Fed raised interest rates seven times in 2022, with more on the horizon this year. In its December meeting, the Fed indicated taking the interest rate to 5.1% in 2023 to combat its expected 3.1% inflation. Thus, an improving interest rate environment should aid net investment income.

Banking on operational excellence, EIG has increased dividend at a 10-year CAGR of 15.8%. The insurer also pays a special cash dividend. EIG also engages in share buybacks as part of its capital management strategy.
The stock carries an impressive VGM Score of A.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Root, Inc. (ROOT - Free Report) , Kinsale Capital Group, Inc. (KNSL - Free Report) and First American Financial Corporation (FAF - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Root delivered a trailing four-quarter average earnings surprise of 22.44%. In the past year, ROOT has lost 91.4%.

The Zacks Consensus Estimate for ROOT’s 2023 earnings indicates a year-over-year increase of 23.9%.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average being 15.16%. In the past year, KNSL has gained 22%.

The Zacks Consensus Estimate for KNSL’s 2023 earnings implies a year-over-year rise of 22.6%.

First American has a solid track record of beating earnings estimates in each of the last six quarters. In the past year, FAF has lost 28.6%.

The Zacks Consensus Estimate for FAF’s 2023 earnings has moved 3.9% north in the past 60 days. 

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