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ACGL Trading at a Premium to Industry: How Should You Play the Stock?
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Key Takeaways
ACGL gains from a diverse product portfolio, providing earnings stability and growth opportunities.
Strategic acquisitions have expanded ACGL's footprint in the middle-market property and casualty segment.
Both Insurance and Reinsurance segments are poised for growth from premium increases across business lines.
Shares of Arch Capital Group Ltd. (ACGL - Free Report) are trading at a premium to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.64X is higher than the industry average of 1.54X. It has a Value Score of B.
Shares of The Travelers Companies, Inc. (TRV - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) are also trading at a multiple higher than the industry average, while NMI Holdings Inc. (NMIH - Free Report) shares are trading at a discount.
Image Source: Zacks Investment Research
Arch Capital shares have lost 11.8% in the past year, underperforming its industry, the Finance sector, as well as the Zacks S&P 500 composite’s return.
ACGL vs Industry, Sector & S&P 500 in 1 Year
Image Source: Zacks Investment Research
With a market capitalization of $33.84 billion, the average volume of shares traded in the last three months was 1.6 million. Closing at $90.30 on Wednesday, the stock stands 22.5% below its 52-week high of $116.47. The stock is trading below the 50-day and 200-day simple moving averages (SMA) of $92.51 and $97.23, respectively, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Average Target Price for ACGL Suggests Upside
Based on short-term price targets offered by 15 analysts, the Zacks average price target is $110.80 per share. The average suggests a potential 22.9% upside from the last closing price.
Image Source: Zacks Investment Research
ACGL’s Encouraging Growth Projection
The Zacks Consensus Estimate for Arch Capital’s 2025 revenues is pegged at $18.86 billion, implying a year-over-year improvement of 13.4%. The consensus estimate for 2026 earnings per share and revenues indicates an increase of 20.1% and 6.3%, respectively, from the corresponding 2025 estimates.
Earnings have grown 33.5% in the past five years, better than the industry average of 20.8%. Arch Capital’s bottom line surpassed earnings estimates in each of the last four quarters, the average being 13.90%.
Return on Capital of ACGL
Arch Capital’s trailing 12-month return on equity is 15.79%, ahead of the industry average of 7.8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Mixed Analyst Sentiment on ACGL
Five of the eight analysts covering the stock have raised estimates for 2025 while four have lowered the same for 2026 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 earnings has moved up 0.8% in the past 60 days, while the same for 2026 has moved down 1.3% in the same time frame.
Image Source: Zacks Investment Research
Factors Favoring Arch Capital
Widespread operations, coupled with a compelling product portfolio, provide meaningful diversification and earnings stability to ACGL. These also enable international expansion, enhance operations and diversify business at attractive risk-adjusted returns through strategic buyouts.
Its Mortgage Insurance complements the specialty insurance and reinsurance businesses. ACGL’s buyout of Allianz’s U.S. MidCorp and Entertainment insurance business has expanded its footprint in the middle-market property and casualty segment.
A growing base of invested assets, driven by improving cash flows, should drive investment income.
Sufficient liquidity, coupled with low leverage, has helped ACGL strengthen its balance. It also shields it from market volatility and supports growth initiatives.
Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.
Final Take on ACGL
Arch Capital boasts a strong product portfolio and has a solid track record of premium growth, as well as favorable return on capital. Both the Insurance and Reinsurance segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility.
Image: Bigstock
ACGL Trading at a Premium to Industry: How Should You Play the Stock?
Key Takeaways
Shares of Arch Capital Group Ltd. (ACGL - Free Report) are trading at a premium to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.64X is higher than the industry average of 1.54X. It has a Value Score of B.
Shares of The Travelers Companies, Inc. (TRV - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) are also trading at a multiple higher than the industry average, while NMI Holdings Inc. (NMIH - Free Report) shares are trading at a discount.
Image Source: Zacks Investment Research
Arch Capital shares have lost 11.8% in the past year, underperforming its industry, the Finance sector, as well as the Zacks S&P 500 composite’s return.
ACGL vs Industry, Sector & S&P 500 in 1 Year
Image Source: Zacks Investment Research
With a market capitalization of $33.84 billion, the average volume of shares traded in the last three months was 1.6 million.
Closing at $90.30 on Wednesday, the stock stands 22.5% below its 52-week high of $116.47. The stock is trading below the 50-day and 200-day simple moving averages (SMA) of $92.51 and $97.23, respectively, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Average Target Price for ACGL Suggests Upside
Based on short-term price targets offered by 15 analysts, the Zacks average price target is $110.80 per share. The average suggests a potential 22.9% upside from the last closing price.
Image Source: Zacks Investment Research
ACGL’s Encouraging Growth Projection
The Zacks Consensus Estimate for Arch Capital’s 2025 revenues is pegged at $18.86 billion, implying a year-over-year improvement of 13.4%. The consensus estimate for 2026 earnings per share and revenues indicates an increase of 20.1% and 6.3%, respectively, from the corresponding 2025 estimates.
Earnings have grown 33.5% in the past five years, better than the industry average of 20.8%. Arch Capital’s bottom line surpassed earnings estimates in each of the last four quarters, the average being 13.90%.
Return on Capital of ACGL
Arch Capital’s trailing 12-month return on equity is 15.79%, ahead of the industry average of 7.8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Mixed Analyst Sentiment on ACGL
Five of the eight analysts covering the stock have raised estimates for 2025 while four have lowered the same for 2026 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 earnings has moved up 0.8% in the past 60 days, while the same for 2026 has moved down 1.3% in the same time frame.
Image Source: Zacks Investment Research
Factors Favoring Arch Capital
Widespread operations, coupled with a compelling product portfolio, provide meaningful diversification and earnings stability to ACGL. These also enable international expansion, enhance operations and diversify business at attractive risk-adjusted returns through strategic buyouts.
Its Mortgage Insurance complements the specialty insurance and reinsurance businesses. ACGL’s buyout of Allianz’s U.S. MidCorp and Entertainment insurance business has expanded its footprint in the middle-market property and casualty segment.
A growing base of invested assets, driven by improving cash flows, should drive investment income.
Sufficient liquidity, coupled with low leverage, has helped ACGL strengthen its balance. It also shields it from market volatility and supports growth initiatives.
Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.
Final Take on ACGL
Arch Capital boasts a strong product portfolio and has a solid track record of premium growth, as well as favorable return on capital. Both the Insurance and Reinsurance segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility.
Given the premium valuation, it is better to stay cautious about this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.