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Palomar (PLMR) Rises 23% YTD: Will the Bull Run Continue?

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Palomar Holdings’ (PLMR - Free Report) shares have gained 23.3% year to date (YTD), outperforming the industry’s increase of 15.9% and the Finance sector’s increase of 11.4%. With a market capitalization of $1.5 billion, the average volume of shares traded in the last three months was 0.1. million.

Strong premium retention rates, new partnerships, rate increases and effective capital deployment continue to drive Palomar. This Zacks Rank #3 (Hold) specialty insurer has a decent history of delivering earnings surprises in the last four reported quarters.

Palomar’s trailing 12-month return on equity was 19.7%, which came ahead of the industry average of 7.2%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

The Zacks Consensus Estimate for 2024 earnings has moved 2.5% north in the past 60 days, reflecting analyst optimism.

Can PLMR Retain the Momentum?

Premiums of the insurer witnessed a five-year CAGR (2017-2022) of 30.2%, benefiting from the increased volume of policies written across the lines of business. New business generated, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships should help in retaining the momentum.

Investment income, an important component of the top line, witnessed a five-year CAGR (2017-2022) of 36.7%.  The metric is poised to benefit from high-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields.

Palomar’s fee-generating PLMR-FRONT should fuel growth in the medium term. The managed premium from Palomar FRONT is expected to offer a growing fee income stream in 2023. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility. Since 2017, Palomar has been able to maintain a combined ratio below 95%, except for 2020. The combined ratio reflects its underwriting profitability.

Palomar boasts a debt-free balance sheet with no exposure to the equity markets. Sustained operational excellence helps it maintain a strong capital position. The insurer engages in share buyback and has $43.5 million remaining available for future repurchases.

All these positives together drive optimistic growth projections. The Zacks Consensus Estimate for 2024 earnings is pegged at $4.05 per share, indicating an increase of 14.1% on 21.3% higher revenues of $436.6 million.

Stocks to Consider

Some top-ranked stocks from the same space are CNA Financial Corporation (CNA - Free Report) , W.R. Berkley Corporation (WRB - Free Report) and Berkshire Hathaway (BRK.B - Free Report)

CNA Financial delivered a trailing four-quarter average earnings surprise of 9.24%. The stock has gained 0.3% year to date. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CNA’s 2024 earnings indicates an increase of 7.4% from the 2023 estimated figure. The expected long-term earnings growth rate is 5%. The consensus estimate for 2024 earnings has moved up 1.5% in the past 30 days.

W.R. Berkley’s earnings surpassed estimates in three of the last four quarters while missing in one, the average being 4.35%. The stock has lost 3% year to date. It currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for WRB’s 2024 earnings implies a rise of 20.2% from the 2023 estimated figure. The expected long-term earnings growth rate is 9%. The consensus estimate for WRB’s 2024 earnings has moved up 1.6% in the past 60 days.

Berkshire delivered a trailing four-quarter average earnings surprise of 0.20%. Year to date, the stock has gained 15.7%. It carries a Zacks Rank #2.

The Zacks Consensus Estimate for BRK.B’s 2024 earnings indicates an increase of 11.1% from the 2023 estimated figure. The expected long-term earnings growth rate is 7%. The consensus estimate for BRK.B’s 2024 earnings has moved up 2.8% in the past 30 days.

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