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What Should You Do With Mercury General Stock Ahead of Q4 Earnings?
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Mercury General Corporation (MCY - Free Report) is expected to register an improvement in its top line but a decrease in its bottom line when it reports fourth-quarter 2024 results on Feb. 12, before the opening bell.
The Zacks Consensus Estimate for MCY’s fourth-quarter revenues is pegged at $1.4 billion, indicating 15.5% growth from the year-ago reported figure.
The consensus estimate for earnings is pegged at 64 cents per share. The Zacks Consensus Estimate for MCY’s fourth-quarter earnings has moved down 67% in the past 60 days. The estimate suggests year-over-year decrease of 44.4%.
Solid Earnings Surprise History
MCY’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 694.28%. This is depicted in the following chart.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for MCY
Our proven model does not conclusively predict an earnings beat for Mercury General this time around. This is because the stock needs to have the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This is not the case, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Mercury General has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate as well as the Zacks Consensus Estimate is pegged at 64 cents.
Mercury General Corporation Price and EPS Surprise
Mercury General is primarily engaged in writing personal automobile insurance and provides related property and casualty insurance products to its customers through 12 subsidiaries in 11 states, principally in California. Rate increases in the California automobile and homeowners lines of insurance business and a rise in the number of policies written in the California homeowners line of insurance business are expected to have driven premiums. The Zacks Consensus Estimate for net premiums earned is pegged at $1.3 billion.
Net investment income benefited from a higher invested asset base coupled with a higher average yield. The Zacks Consensus Estimate for the metric is pegged at $70 million.
However, higher losses and loss adjustment expenses, policy acquisition costs and other operating expenses are likely to have raised expenses. The consensus mark for the loss ratio is pegged at 69, while that for the expense ratio is pegged at 23.9.
Underwriting profitability in the to-be-reported quarter is likely to have been affected by the California wildfire. The consensus mark for the combined ratio is pegged at 102, indicating a deterioration of 300 bps from the year-ago reported number. The insurer stated losses from the wildfire to exceed its reinsurance retention level of $150 million, with a reinsurance program that provides $1.29 billion in limits per occurrence.
MCY’s Price Performance & Attractive Valuation
The stock outperformed the industry, sector and the Zacks S&P 500 composite index in 2024.
Image Source: Zacks Investment Research
MCY stock is cheap, as its Value Score of A suggests a favorable valuation at this moment.
The stock is trading at a price-to-book value of 1.49X, lower than the industry’s 1.61X. It is expensive compared with players like Axis Capital Holdings (AXS - Free Report) and RLI Corporation (RLI - Free Report) but cheap compared with Old Republic International (ORI - Free Report) .
Image Source: Zacks Investment Research
Investment Thesis
Premiums should continue to benefit from rate increases in its lines of insurance business and a higher number of policies written.
Exposure to catastrophe loss negatively impacts the financial condition. Yet, Mercury General has a reinsurance program in place that strives to protect against losses.
Mercury General has generated positive cash flow from operations each year since the public offering of its common stock in November 1985. A solid capital position supported by consistent cash flow enables the company to deploy capital effectively.
MCY’s trailing 12-month return on equity (ROE) reinforces its growth potential. Return on equity is a profitability measure that reflects how effectively a company is utilizing its shareholders’ funds. The company’s trailing 12-month ROE of 18% is better than the industry average of 7.5%.
Conclusion
MCY is poised to generate an improved top line, banking on the strength of higher premiums and net investment income. Despite rising expenses, the insurer has been successfully expanding its margins. Its efficiency in delivering improved return on invested capital while making continuous investments reflects its efficiency in utilizing funds to generate income. Its VGM Score of A instills confidence.
However, risks related to geographical concentration, negative analysts' sentiment, and a probable decline in the bottom line keep us doubtful. It is therefore wise to stay away from MCY stock at present.
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What Should You Do With Mercury General Stock Ahead of Q4 Earnings?
Mercury General Corporation (MCY - Free Report) is expected to register an improvement in its top line but a decrease in its bottom line when it reports fourth-quarter 2024 results on Feb. 12, before the opening bell.
See the Zacks Earnings Calendar to stay ahead of market-making news.
The Zacks Consensus Estimate for MCY’s fourth-quarter revenues is pegged at $1.4 billion, indicating 15.5% growth from the year-ago reported figure.
The consensus estimate for earnings is pegged at 64 cents per share. The Zacks Consensus Estimate for MCY’s fourth-quarter earnings has moved down 67% in the past 60 days. The estimate suggests year-over-year decrease of 44.4%.
Solid Earnings Surprise History
MCY’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 694.28%. This is depicted in the following chart.
Image Source: Zacks Investment Research
What the Zacks Model Unveils for MCY
Our proven model does not conclusively predict an earnings beat for Mercury General this time around. This is because the stock needs to have the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This is not the case, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Mercury General has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate as well as the Zacks Consensus Estimate is pegged at 64 cents.
Mercury General Corporation Price and EPS Surprise
Mercury General Corporation price-eps-surprise | Mercury General Corporation Quote
Zacks Rank: MCY carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Likely to Shape Q4 Results
Mercury General is primarily engaged in writing personal automobile insurance and provides related property and casualty insurance products to its customers through 12 subsidiaries in 11 states, principally in California. Rate increases in the California automobile and homeowners lines of insurance business and a rise in the number of policies written in the California homeowners line of insurance business are expected to have driven premiums. The Zacks Consensus Estimate for net premiums earned is pegged at $1.3 billion.
Net investment income benefited from a higher invested asset base coupled with a higher average yield. The Zacks Consensus Estimate for the metric is pegged at $70 million.
However, higher losses and loss adjustment expenses, policy acquisition costs and other operating expenses are likely to have raised expenses. The consensus mark for the loss ratio is pegged at 69, while that for the expense ratio is pegged at 23.9.
Underwriting profitability in the to-be-reported quarter is likely to have been affected by the California wildfire. The consensus mark for the combined ratio is pegged at 102, indicating a deterioration of 300 bps from the year-ago reported number. The insurer stated losses from the wildfire to exceed its reinsurance retention level of $150 million, with a reinsurance program that provides $1.29 billion in limits per occurrence.
MCY’s Price Performance & Attractive Valuation
The stock outperformed the industry, sector and the Zacks S&P 500 composite index in 2024.
Image Source: Zacks Investment Research
MCY stock is cheap, as its Value Score of A suggests a favorable valuation at this moment.
The stock is trading at a price-to-book value of 1.49X, lower than the industry’s 1.61X. It is expensive compared with players like Axis Capital Holdings (AXS - Free Report) and RLI Corporation (RLI - Free Report) but cheap compared with Old Republic International (ORI - Free Report) .
Image Source: Zacks Investment Research
Investment Thesis
Premiums should continue to benefit from rate increases in its lines of insurance business and a higher number of policies written.
Exposure to catastrophe loss negatively impacts the financial condition. Yet, Mercury General has a reinsurance program in place that strives to protect against losses.
Mercury General has generated positive cash flow from operations each year since the public offering of its common stock in November 1985. A solid capital position supported by consistent cash flow enables the company to deploy capital effectively.
MCY’s trailing 12-month return on equity (ROE) reinforces its growth potential. Return on equity is a profitability measure that reflects how effectively a company is utilizing its shareholders’ funds. The company’s trailing 12-month ROE of 18% is better than the industry average of 7.5%.
Conclusion
MCY is poised to generate an improved top line, banking on the strength of higher premiums and net investment income. Despite rising expenses, the insurer has been successfully expanding its margins. Its efficiency in delivering improved return on invested capital while making continuous investments reflects its efficiency in utilizing funds to generate income. Its VGM Score of A instills confidence.
However, risks related to geographical concentration, negative analysts' sentiment, and a probable decline in the bottom line keep us doubtful. It is therefore wise to stay away from MCY stock at present.