Estimates for Selective Insurance Group, Inc. (SIGI - Free Report) have been revised upward over the past 60 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 bottom line move 3.5% north to $3.53 and for 2019 being raised 0.7% to $4.18.
This provider of insurance products and services in the United States carries an impressive Value Score of A. Shares of this Zacks Rank #2 (Buy) insurer have rallied 23.6% in a year, outperforming the industry’s 15.7% increase and the Zacks S&P 500 Composite's growth of 16.2%. Back tested results have shown that stocks with a favorable Value Score of A or B coupled with a bullish Zacks Rank #1 (Strong Buy) and 2 are the best investment bets.
Let’s focus on the factors that make Selective Insurance a stock to be invested in for attractive returns.
Improving Top Line: Selective Insurance Group’s rising revenues over the past several years are attributable to higher net premiums earned as well as investment income. The company’s top line witnessed a five-year CAGR of 5.3%.
High retention ratio, pure renewal price increases and new business growth should continue to drive premiums, which in turn, can further aid the company’s top-line increase.
Higher fixed income book yield as well as returns from alternative investments contributed to improved net investment income. The company is projecting an after-tax net investment income of $150 million for 2018, given the accelerated pace in Fed’s move to hike rates.
Geographic Expansion: Selective Insurance Group relies on geographic expansion for growth as well as diversification. So far, the company is on track with its geographic expansion strategy. It already launched Standard Commercial Lines business in Colorado and expects to open Standard Personal Lines business in Arizona and Utah.
Sturdy Capital Position: Selective Insurance Group has a strong capital management policy in place that enhances its shareholder value along with improving its financial strength as well as underwriting capabilities. The company aims at a premium surplus ratio of about 1.4x. Selective Insurance Group has also been effectively improving its leverage and sets a target of about 25% long-term debt-to-capital ratio.
The company’s dividend hike witnessed a five-year CAGR of 6.7%.
Return on Equity: Selective Insurance Group’s return on equity stands at 10.7%, much above the industry average of 5.9%. Return on equity underscores profitability, identifying how efficiently the company is utilizing its shareholders’ money.
Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $3.53, representing year-over-year growth of 40% on 7.5% higher revenues of $2.6 billion. For 2019, the consensus mark for the bottom line stands at $4.18, translating into a 6.4% year-over-year rise as revenues improve 6.5% to $2.8 billion.
Selective Insurance Group has an expected long-term earnings per share growth rate of 16.2%, better than the industry average of 11.8%.
Positive Earnings Surprise History: The company flaunts a solid earnings surprise history, exceeding the Zacks Consensus Estimate in all the last four quarters. This outperformance underlines the company’s operational efficiency, which delivered an average four-quarter positive earnings surprise of 6.57%.
Other Stocks to Consider
Investors interested in property and casualty industry can also check out a few other top-ranked stocks like Arch Capital Group Ltd. (ACGL - Free Report) , American Financial Group Inc. (AFG - Free Report) and Berkshire Hathaway Inc. (BRK.B - Free Report) , each sharing the same bullish Zacks Rank of 2 with Selective Insurance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. It delivered a positive surprise of 13.46% in the earlier reported quarter.
American Financial Group provides property and casualty insurance products in the United States. Last reported quarter, it pulled off an earnings surprise of 8.51%.
Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. It came up with a 22.91% beat in the previously reported quarter.
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