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Everest Group Stock Lags Industry YTD: Should You Hold or Fold?
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Shares of Everest Group, Ltd. (EG - Free Report) have gained 9.9% year to date, underperforming the industry’s growth of 16.8% and the Zacks S&P 500 composite’s return of 17.8%.
EG Lags Industy and S&P YTD
Image Source: Zacks Investment Research
Closing at $388.30 in the last trading session, the stock stands below its 52-week high of $417.92. The expected long-term earnings growth rate is pegged at 2.3%, lower than the industry average of 12.4%.
The insurer has been experiencing an increase in expenses due to higher incurred losses and loss adjustment expenses, commission, brokerage, taxes and fees and other underwriting expenses. The company should continue to generate revenues at a higher magnitude than expenses. In the first half of 2024, total claims and expenses increased 15.8% to $6.7 billion.
Everest Group remains exposed to catastrophe losses, which causes earnings to fluctuate. The current year’s catastrophe losses of $236 million for the six months ended June 30, 2024, were wider than the year-ago period’s loss of $142 million.
The combined ratio deteriorated 20 basis points in the first half of 2024. The deterioration is primarily due to a rise in commission and brokerage expenses and higher catastrophe losses. EG expects to achieve 89-91% combined ratio for the total group for the 2024-2026 period.
Mixed Analyst Sentiment on EG
Five of the six analysts covering the stock have raised estimates for 2024, while one has lowered the same over the past 30 days. For 2025, two analysts have raised estimates while three have lowered estimates over the same time frame.
The consensus estimate for 2024 has moved 0.6% north, while the consensus estimate for 2025 has moved 0.7% south in the past 60 days. The Zacks Consensus Estimate for 2024 and 2025 earnings indicates an improvement of 11% and 11.2%, respectively.
EG’s Return on Capital
EG’s trailing 12-month return on equity is 24%, ahead of the industry average of 16%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Also, the return on invested capital in the trailing 12 months was 16.6%, better than the industry average of 2.5%. This reflects the company’s efficiency in utilizing funds to generate income.
Trading Above 50-Day & 200-Day Moving Average
The stock is trading above the 50-day and 200-day simple moving average (SMA) of $381.33 and $377.02, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Key Drivers of Everest Group
Global presence, product diversification, rate increase and high retention rate continue to drive EG’s overall growth. The Insurance segment is poised to benefit from an increase in property and short tail business and a rise in specialty casualty business. On the other hand, leveraging opportunities stemming from the continued disruption and evolution of the reinsurance market should poise the Reinsurance segment for growth.
Net investment income stands to benefit from higher income from the fixed income portfolio, an increase in limited partnership income, a rise in dividend income from the equity portfolio and higher income from other invested assets. An improved interest rate environment adds to the upside.
Everest Group has a strong capital position, banking on sufficient cash generation capabilities and benefits from capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The multi-line insurer targets a 15-20% long-term debt leverage ratio for three years.
EG’s Capital Deployment
Everest Group is expected to benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. In May 2024, its board approved a 14.3% hike in its quarterly dividend. EG paid $163 million in dividends to adjust capital position and enhance long-term expected returns to shareholders. Everest Group targets a total shareholder return on equity of more than 17% from 2024 to 2026. It reflects the robust and well-diversified earnings power of Everest. EG expects to make consistent payouts along with buybacks, given its disciplined capital management strategy and strong capital balance.
EG Shares are Affordable
The stock is undervalued compared with its industry. It is currently trading at a price-to-book multiple of 1.19, lower than the industry average of 2.63. The insurer has an impressive Value Score of A.
Shares of other multi-line insurers like Radian Group Inc. (RDN - Free Report) , Assurant, Inc. (AIZ - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) are also trading at a discount to the industry average.
Conclusion
Higher income from the fixed income portfolio, product diversification, favorable estimates, strong renewal retention, prudent capital deployment and a solid capital position make Everest Group a strong contender for being in one’s portfolio.
However, exposure to catastrophe losses, escalating expenses and high leverage keep us cautious.
Image: Bigstock
Everest Group Stock Lags Industry YTD: Should You Hold or Fold?
Shares of Everest Group, Ltd. (EG - Free Report) have gained 9.9% year to date, underperforming the industry’s growth of 16.8% and the Zacks S&P 500 composite’s return of 17.8%.
EG Lags Industy and S&P YTD
Image Source: Zacks Investment Research
Closing at $388.30 in the last trading session, the stock stands below its 52-week high of $417.92. The expected long-term earnings growth rate is pegged at 2.3%, lower than the industry average of 12.4%.
The insurer has been experiencing an increase in expenses due to higher incurred losses and loss adjustment expenses, commission, brokerage, taxes and fees and other underwriting expenses. The company should continue to generate revenues at a higher magnitude than expenses. In the first half of 2024, total claims and expenses increased 15.8% to $6.7 billion.
Everest Group remains exposed to catastrophe losses, which causes earnings to fluctuate. The current year’s catastrophe losses of $236 million for the six months ended June 30, 2024, were wider than the year-ago period’s loss of $142 million.
The combined ratio deteriorated 20 basis points in the first half of 2024. The deterioration is primarily due to a rise in commission and brokerage expenses and higher catastrophe losses. EG expects to achieve 89-91% combined ratio for the total group for the 2024-2026 period.
Mixed Analyst Sentiment on EG
Five of the six analysts covering the stock have raised estimates for 2024, while one has lowered the same over the past 30 days. For 2025, two analysts have raised estimates while three have lowered estimates over the same time frame.
The consensus estimate for 2024 has moved 0.6% north, while the consensus estimate for 2025 has moved 0.7% south in the past 60 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings indicates an improvement of 11% and 11.2%, respectively.
EG’s Return on Capital
EG’s trailing 12-month return on equity is 24%, ahead of the industry average of 16%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Also, the return on invested capital in the trailing 12 months was 16.6%, better than the industry average of 2.5%. This reflects the company’s efficiency in utilizing funds to generate income.
Trading Above 50-Day & 200-Day Moving Average
The stock is trading above the 50-day and 200-day simple moving average (SMA) of $381.33 and $377.02, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Key Drivers of Everest Group
Global presence, product diversification, rate increase and high retention rate continue to drive EG’s overall growth. The Insurance segment is poised to benefit from an increase in property and short tail business and a rise in specialty casualty business. On the other hand, leveraging opportunities stemming from the continued disruption and evolution of the reinsurance market should poise the Reinsurance segment for growth.
Net investment income stands to benefit from higher income from the fixed income portfolio, an increase in limited partnership income, a rise in dividend income from the equity portfolio and higher income from other invested assets. An improved interest rate environment adds to the upside.
Everest Group has a strong capital position, banking on sufficient cash generation capabilities and benefits from capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The multi-line insurer targets a 15-20% long-term debt leverage ratio for three years.
EG’s Capital Deployment
Everest Group is expected to benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. In May 2024, its board approved a 14.3% hike in its quarterly dividend. EG paid $163 million in dividends to adjust capital position and enhance long-term expected returns to shareholders. Everest Group targets a total shareholder return on equity of more than 17% from 2024 to 2026. It reflects the robust and well-diversified earnings power of Everest. EG expects to make consistent payouts along with buybacks, given its disciplined capital management strategy and strong capital balance.
EG Shares are Affordable
The stock is undervalued compared with its industry. It is currently trading at a price-to-book multiple of 1.19, lower than the industry average of 2.63. The insurer has an impressive Value Score of A.
Shares of other multi-line insurers like Radian Group Inc. (RDN - Free Report) , Assurant, Inc. (AIZ - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) are also trading at a discount to the industry average.
Conclusion
Higher income from the fixed income portfolio, product diversification, favorable estimates, strong renewal retention, prudent capital deployment and a solid capital position make Everest Group a strong contender for being in one’s portfolio.
However, exposure to catastrophe losses, escalating expenses and high leverage keep us cautious.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.