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RLI Corp. (RLI) Up 1.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for RLI Corp. (RLI - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RLI Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

RLI Q3 Earnings Surpass Estimates, Revenues Increase Y/Y

RLI Corp.’s third-quarter 2019 operating earnings of 57 cents per share beat the Zacks Consensus Estimate by 18.8%. The bottom line improved 23.9% from the prior-year quarter.

The quarter benefited from improved premiums from Casualty and Property segments and growth in net investment income.

Operational Performance

Operating revenues for the reported quarter totaled $229 million, in line with the Zacks Consensus Estimate. The top line increased 5.5% year over year. This upside can be attributed to higher net premiums earned (up 5.2% year over year) and net investment income (up 7.5%).

Gross premiums written increased 16% year over year to $276.9 million. This uptick was driven by Casualty and Property segments.

Total expenses increased 2.1% year over year to nearly $202 million, primarily due to increased insurance operating expenses and policy acquisition costs.

Net investment income rose 7.5% year over year to $17.5 million. Total return from the investment portfolio was 1.9%.

The company reported underwriting income of $13.7 million, which increased 75.6% from the year-ago period. This upside was due to solid results at the Property and Casualty segments, partially offset by soft performance of the Surety segment.

Combined ratio for the third quarter improved 260 basis points year over year to 93.5%.

Financial Update

The company exited the third quarter with total investments and cash of $2.5 billion, up 14.6% from 2018 end.

Book value was $22.30 per share as of Sep 30, 2019, up 23% from the figure as of Dec 31, 2018.

Long-term debt was $149.3 million, up 0.1% from 2018 end.

Statutory surplus improved 23.1% to $1021.3 million as of Sep 30, 2019 from $829.8 million as of Dec 31, 2018.

Return on equity was 21.8% for the nine months ended Sep 30, reflecting an increase of 960 basis points.

Net cash flow from operations increased 28.5% year over year to $81.4 million in the quarter under review.

Dividend Update

On Sep 20, 2019, the company paid out quarterly dividend of 23 cents per share. Dividends totaled $606 million in the last five years.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, RLI Corp. has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, RLI Corp. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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