Arch Capital (ACGL) Rises 35% YTD: Will the Rally Last?
Arch Capital Group Ltd.’s ACGL shares have rallied 34.8% year to date, outperforming the industry’s growth of 15.9%, the Finance sector’s rise of 4.3% and the Zacks S&P 500 composite’s increase of 9.8%. With a market capitalization of $37.5 billion, the average volume of shares traded in the last three months was 1.8 million.
New business opportunities, rate improvement, growth in existing accounts and a solid capital position continue to drive Arch Capital. This Zacks Rank #1 (Strong Buy) insurer has a solid history of delivering earnings surprises in the last eight reported quarters. Earnings of this leading specialty P&C and mortgage insurer increased 32.3% in the last five years, better than the industry average of 9.6%.
Return on equity in the trailing 12 months was 21.9%, better than the industry average of 7.8%. This highlights the company’s efficiency in utilizing shareholders’ funds.
The company has a VGM Score of B. The Style Score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum.
Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting ACGL’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 16.6%, better than the industry average of 5.9%.
Can ACGL Retain the Bull Run?
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 5.1% and 2.6% north, respectively, in the past 30 days, reflecting analyst optimism.
Business opportunities, rate increases, a rise in existing accounts and growth in Australian single-premium mortgage insurance should benefit Arch Capital’s premiums. Widespread operations coupled with a compelling product portfolio provide meaningful diversification and earnings stability to ACGL.
Arch Capital’s inorganic growth is impressive. Strategic buyouts lead to international expansion, enhancing operations and diversifying the business at attractive risk-adjusted returns. Arch Insurance North America’s master transaction agreement to acquire Allianz’s U.S. MidCorp and Entertainment insurance business testifies Arch's commitment to expand its footprint in the middle-market property and casualty segment.
The diversification of its Mortgage Insurance business via strategic acquisitions complements the strength of the specialty insurance and reinsurance businesses.
Investment income should benefit from a growing base of invested assets driven by improving cash flows.
Arch Capital has been strengthening its balance sheet with high liquidity and low leverage. This also shields it from market volatility and supports growth initiatives.
Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.
It has a Value Score of B. This style score helps find the most attractive value stocks.Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are best investment bets.
Other Stocks to Consider
Some other top-ranked stocks from the same space are The Allstate Corporation ALL, The Progressive Corporation PGR and RLI Corp RLI, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Allstate delivered a four-quarter average earnings surprise of 41.88%. The stock has gained 12.8% year to date. The Zacks Consensus Estimate for ALL’s 2024 and 2025 earnings indicates an increase of 1,479% and 13.8%, respectively.
Progressive delivered a four-quarter average earnings surprise of 4.99%. The stock has gained 24.5% year to date. The Zacks Consensus Estimate for PGR’s 2024 and 2025 earnings indicates an increase of 84.8% and 5.7%, respectively.
RLI delivered a four-quarter average earnings surprise of 132.49%. The stock has gained 26.2% year to date. The Zacks Consensus Estimate for RLI’s 2024 and 2025 earnings indicates an increase of 18% and 2.6%, respectively.
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RLI Corp. (RLI) : Free Stock Analysis Report
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Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
