Estimates for Arch Capital Group Ltd. (ACGL - 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 5.2% north to $2.23 and for 2019 being raised 2.6% to $2.37.
Though shares of this Zacks Rank #2 (Buy) provider of insurance, reinsurance and mortgage insurance across the world have rallied 13.2% quarter to date, underperformed the industry’s 14.9% increase, it outperformed the Zacks S&P 500 Composite's growth of 7.2%.
Compelling product portfolio driving premium growth, expanding U.S. Mortgage Insurance Business and solid capital position should continue to drive long-term growth of the insurer.
Let’s focus on the factors that make Arch Capital a stock to be invested in for attractive returns.
Improving Top Line: Arch Capital’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 has grown nearly 60% over the last five year.
While a diverse product and service portfolio should continue to drive premiums higher, accelerated pace of rate hikes should favor improved investment results.
Expanding U.S. Mortgage Insurance Business: The expansion of the mortgage insurance business is in tandem with the company strategy to strengthen its specialty insurance and reinsurance businesses, which continue to be central to global operations.
Strategic Acquisitions: The company has also been pursuing strategic acquisitions that helps the company expand internationally, add capabilities, enhance operations and diversify business. This in turn also bears testimony to the company’s solid capital position.
Sturdy Capital Position: Arch Capital has a solid capital position reflecting its financial flexibility. While it shields the company from market volatility, the same enables to retain the financial strength and flexibility needed to pursue new opportunities.
Return on Equity: Arch Capital’s return on equity stands at 6.9%, above the industry average of 5.8%. 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 $2.23, representing a staggering year-over-year growth of 108.4%. For 2019, the consensus mark for the bottom line stands at $2.37, translating into a 6.3% year-over-year rise.
Arch Capital has an expected long-term earnings per share growth rate of 11%.
Undervaluation: Shares of Arch Capital are trading at a price to book value multiple of 1.3, lower than the industry average of 1.5. The company carries a favorable Value Score of B. Value Score helps identify the most attractive value stocks that hves a track of generating superior returns. 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.
Positive Earnings Surprise History: The company flaunts a solid earnings surprise history, exceeding the Zacks Consensus Estimate in all the last three quarters. This outperformance underlines the company’s operational efficiency, which delivered an average three-quarter positive earnings surprise of 13.23%.
Other Stocks to Consider
Investors interested in property and casualty industry can also check out a few other top-ranked stocks like Axis Capital Holdings Limited (AXS - 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 Arch Capital. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AXIS Capital provides various specialty insurance and reinsurance products worldwide. It delivered a positive surprise of 6.72% 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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