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Palomar (PLMR) Shares Rise 48% YTD: More Room for Growth?

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Palomar Holdings’ (PLMR - Free Report) shares have gained 47.9% year to date, outperforming the industry’s increase of 18.3%, the Finance sector’s increase of 4.5% and the S&P 500 composite’s rise of 9.9%. With a market capitalization of $2 billion, the average volume of shares traded in the last three months was 0.2 million.

New business, strong premium retention rates for existing business and renewals of existing policies, better pricing and effective capital deployment continue to drive Palomar. This Zacks Rank #1 (Strong Buy) specialty insurer has a decent history of delivering earnings surprises in the last five reported quarters, with the average being 7.82%.

Palomar’s trailing 12-month return on equity was 19.4%, which came ahead of the industry average of 7.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Also, the return on invested capital has been 17.2% over the trailing 12 months, outperforming the industry average of 5.6%. The company has raised its capital investment significantly, reflecting PLMR’s efficiency in utilizing funds to generate income.


Zacks Investment Research
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Can PLMR Retain the Momentum?

Premiums, which are the principal component of an insurer’s top line, should continue to benefit 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. We estimate 2026 gross premiums written to witness a three-year CAGR of 15.3%.

High-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields favor improvement in net investment income, which witnessed a five-year CAGR (2018-2023) of 49%. Given a solid investment portfolio and a better interest rate environment, we estimate the metric to witness a three-year CAGR of 59.5%.

Palomar’s fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

This insurer’s prudent underwriting expertise is reflected in its combined ratio, which has been under 95% since 2017, except in 2020. PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility.

Palomar has a debt-free balance sheet. Continued operational excellence also helps it maintain a strong capital position. Though the insurer does not pay dividends, it engages in share buybacks and has $43.5 million available for future repurchases.

All these positives together drive the growth projections. The Zacks Consensus Estimate for 2024 earnings is pegged at $4.29 per share, indicating an increase of 16.3% on 24.6% higher revenues of $464.6 million. The consensus estimate for 2025 earnings is pegged at $5.06 per share, indicating an increase of 18% on 23.1% higher revenues of $572 million.

Palomar expects to generate adjusted net income between $110 million and $115 million in 2024.  We estimate the 2026 bottom line to witness a three-year CAGR of 17.2%.

Other Stocks to Consider

Some other top-ranked stocks from the same space are Heritage Insurance (HRTG - Free Report) , The Progressive Corporation (PGR - Free Report) and Mercury General (MCY - Free Report) , each sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Heritage Insurance delivered a trailing four-quarter average earnings surprise of 287.25%. The stock has gained 68.6% year to date. The Zacks Consensus Estimate for HRTG’s 2024 and 2025 earnings has moved 7% and 18.7% north, respectively, in the past 30 days.  

Progressive beat estimates in two of the last four quarters while missing estimates in on the other two occasions. The stock has gained 31.8% year to date. The Zacks Consensus Estimate for PGR’s 2024 and 2025 earnings indicates a year-over-year increase of 61.7% and 12.2%, respectively.  

Mercury General delivered a trailing four-quarter average earnings surprise of 3417.48%. The stock has gained 40.9% year to date. The Zacks Consensus Estimate for MCY’s 2024 and 2025 earnings indicates a year-over-year increase of 866.7% and 34.5%, respectively. 

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