Reinsurance Group of America, Incorporated (RGA - Free Report) has been witnessing southbound revisions of late. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 7.3% downward while for 2019, the consensus mark moved nearly 0.4% south.
The stock carries a Zacks Rank #4 (Sell) with an unimpressive VGM Score of C. Back tested results show that stocks with a favorable VGM Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy), comfortably outperform other stocks.
Shares of Reinsurance Group have lost 8.9% year to date, slightly narrower than the industry’s decrease of 10.5%. Although the stock has performed comparatively better than the industry in the above-mentioned time frame, we are apprehensive about its share price movement going forward based on the headwinds faced by the stock that we will discuss below. You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Ailing the Stock?
Rising Expenses: Reinsurance Group has been incurring rising expenses over the past few years, primarily due to higher claims and other policy benefits, policy acquisition costs and other insurance expenses as well as interest expenses. The life insurer witnessed the metric increase 5% over the past five years. We do not expect any major turnaround in this respect in the near term. It is important to note that escalating expenses are likely to restrict operating margin expansion, which in turn might hurt the company’s overall growth.
Weak Australian Business: Additionally, the company’s Australian business has been displaying weak performance over a considerable period of time, mainly due to competitive direct and reinsurance markets, complex product designs, softening claims experience and increasing legal activity. We continue to anticipate a certain level of volatility in this business in the near term.
Dwindling Cash Flows: Moreover, Reinsurance Group’s cash flow from operations has also been on the wane over an extended period of time and we expect volatility in this metric to continue in the short term. Dwindling cashflows might restrain the company’s financial flexibility.
Low ROE: Return on equity — a measure for comparing a company’s profitability — stands at 8%, noticeably below the industry average of 12.1%. Also, the company’s long-term growth is 9%, much lower than the industry’s 11.9% tally.
Choosing the Stocks
While Reinsurance Group appears far from being an attractive pick right now, there are a few good solid stocks in the insurance space, which promises greater returns to fill in pockets with. Also, these companies have outperformed the industry’s rally so far this year.
We have narrowed down to four investor-friendly stocks with an upside potential to enhance one’s portfolio by means of Zacks Stock Screener. Our search is refined by using a robust Zacks Rank, northward estimate revisions and a commendable VGM Score of A or B. Buy-rated stocks with strong Value Scores are the best deals on offer.
Birmingham, AL-based Infinity Property and Casualty Corporation offers personal automobile insurance products in the United States. The company carries a Zacks Rank #2 with an impressive VGM Score of A. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 5% upward and for 2019, moved 1.1% north, over the last 60 days.
Shares of Infinity Property and Casualty have surged 35.9% year to date versus the industry’s decline of 3.2%.
Headquartered at Mayfield Village, OH, The Progressive Corporation (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance and related services, primarily in the United States. The company has a VGM Score of A and a Zacks Rank of 1. The stock has been witnessing upward estimate revisions — up 7.7% for 2018 and 5.8% for 2019 — over the last 60 days.
Shares of Progressive Corporation have risen 9.2% year to date against the industry’s decrease.
The Navigators Group, Inc. (NAVG - Free Report) based in Stamford, CT, underwrites marine, property and casualty plus professional liability insurance products and services in the United States and internationally. The company has a VGM Score of B and a Zacks Rank of 2. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being raised 6.8% and for 2019, moved 1.7% up, over the last 60 days.
Shares of Navigators Group have rallied 21.4% year to date versus the industry’s decrease.
Headquartered at Columbus, GA, Aflac Incorporated (AFL - Free Report) provides voluntary supplemental health and life insurance products. The company has a VGM Score of B and is a Zacks #2 Ranked player. The stock has been witnessing upward estimate revisions — up 1.5% for 2018 and 0.7% for next year — over the last 60 days.
Shares of Aflac have grown 2.9% year to date against the industry’s fall of 5.2%.
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