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Why Hold Strategy is Apt for Selective Insurance (SIGI) Stock

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Selective Insurance Group, Inc. (SIGI - Free Report) is well-poised for growth based on improving premiums, geographic expansion and strong capital position. The Zacks Rank #3 (Hold) company is a provider of insurance products and services across the United States.

Estimates for Selective Insurance have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2019 earnings per share has moved 0.5% north.

Selective Insurance has a decent surprise history having delivered positive surprise in three of the last four quarters, with the average beat being 12.82%.

Selective Insurance’s return on equity — a profitability measure — is 13.7%, better than the industry average of 7.1%.This reflects the company’s efficiency in utilizing its shareholders’ funds.

Renewal pure price increases, new business premium written, new business opportunities and high retention ratio should continue to fuel premium growth for Selective Insurance.

Higher fixed income book yield and higher returns from alternative investments have been helping the company to generate better net investment income amid an improved rate environment. For 2019, Selective Insurance projects investment income of $180 million, up from the earlier expectation of $175 million.

Further, the company has been expanding geographically and presently its commercial line has a presence in 27 states. Also, as part of the long-term growth strategy, the company intends to increase standard commercial lines market held by its Ivy League distribution partners to at least 25% as well as grow its share of the business within these distribution partners. All these combined should drive top-line growth. 

Its robust balance sheet aids the company to continually improve its financial strength, underwriting capabilities and effectively deploy capital. Its dividend has increased at a five-year CAGR of 9%. Its dividend yield of 1.1% betters the industry average of 0.4%, making the stock an attractive pick for yield-seeking investors.

Shares of Selective Insurance have gained 18.9% year to date, outperforming the industry's rise of 1.7% and Zacks S&P 500 composite's increase of 10.4%. We expect solid operational performance to drive shares going ahead.

 


 

The Zacks Consensus Estimate for 2019 earnings per share is pegged at $4.17, indicating 13.9% year-over-year rise. Revenues are expected to increase 7.6% to $2.8 billion. For 2020, the consensus mark for earnings is pegged at $4.45, indicating 6.8% year-over-year growth while revenues are expected to increase 5.6% to $3 billion. The expected long-term earnings growth is pegged at 10.6%.

Stocks to Consider

Some better-ranked property and casualty industry players include Argo Group International Holdings, Ltd. (ARGO - Free Report) , Hallmark Financial Services, Inc. (HALL - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company delivered four-quarter average positive surprise of 224.07%.

Hallmark Financial underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The company delivered four-quarter average positive surprise of 98.45%.

Kinsale Capital provides casualty and property insurance products in the United States. The company delivered four-quarter average positive surprise of 7.55%.

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