Arch Capital Group Ltd. (ACGL - Free Report) is poised for long-term growth on the back of solid premium growth, prudent diversification and risk selection, expansion of U.S. Mortgage Insurance business, and solid capital position. The company boasts a Zacks Rank #1 (Strong Buy), favored by upward movement of estimates over the past four weeks.
Recently, Arch Capital reported fourth-quarter 2018 results. Operating income per share outperformed the Zacks Consensus Estimate by 24.3% and improved 2.2% from the prior-year quarter, aided by improving premiums and net investment income. Soft results from Insurance segment were offset by sturdy performance at the Mortgage segment.
Shares of this insurer have rallied 20.7% year to date, outperforming the S&P 500 Index’s gain of 11.5%. The stock sports a Value Score of A. Value Score helps to find undervalued stocks. Back-tested results show that stocks with a favorable Value Score of A or B coupled with a solid Zacks Rank #1 and 2 (Buy) offer the best investment opportunity.
Arch Capital’s return on equity — a profitability measure — is 10.7%, which expanded 500 basis points (bps) from 2017. This reflects the company’s efficiency in utilizing its shareholders’ funds. Book value per share was $21.52, up 6% year over year. Net cash provided by operating activities was $1.6 billion in 2018, which increased 42% from the 2017 level, helping the company to exit 2018 with cash of $646.6 million, up 6.7% year over year. The company’s debt inched up 0.4% year over year to $1.7 billion and leverage ratio improved 390 bps.
The insurer has been effectively expanding the U.S. Mortgage Insurance business. In addition to strategic acquisitions, the company broadened its customer base into national and regional banks, as well as mortgage originators, while increasing its share in the mortgage insurance credit union market.
Compelling product portfolio should continue driving higher premiums for the company.
The insurer boasts a robust capital and liquidity position that shields it from market volatility, enabling it to retain its financial strength and flexibility required to pursue new opportunities, in order to keep up with its long-term strategy. Also, a strong capital position supports effective capital deployment. It now has $163.7 million remaining under its share repurchase authorization.
The Zacks Consensus Estimate for 2019 earnings is pegged at $2.56 per share, indicating 16.4% year-over-year increase on 6.2% higher revenues. Its long-term expected earnings growth is currently pegged at 11%. Notably, the company has outperformed earnings expectations for four consecutive quarters.
Other Stocks to Consider
Other top-ranked insurers include Cincinnati Financial Corporation (CINF - Free Report) , RLI Corp. (RLI - Free Report) and The Allstate Corporation (ALL - Free Report) .
Cincinnati Financial provides property casualty insurance products in the United States. It came up with a positive surprise of 22.50% in the last reported quarter. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
RLI, an insurance holding company, underwrites property and casualty insurance in the United States and internationally. The company delivered 566.67% positive earnings surprise in the last reported quarter. The stock carries a Zacks Rank #2.
Allstate provides property and casualty, as well as other insurance products in the United States and Canada. The company delivered 22.77% positive earnings surprise in the last reported quarter. The stock carries a Zacks Rank #2.
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