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Arch Capital (ACGL) Up 35% in a Year: More Room for Upside?

Arch Capital Group Ltd.’s ACGL shares have rallied 34.9% in a year, outperforming the industry’s increase of 1.7%. The Finance sector and the Zacks S&P 500 composite have decreased 13.8% and 16.2%, respectively, in the same period. With a market capitalization of $23.3 billion, the average volume of shares traded in the last three months was about 3.8 million.

New business opportunities, rate increases, growth in existing accounts and a solid capital position continue to drive this Zacks Rank #3 (Hold) insurer. This leading specialty P&C and mortgage insurer has a decent history of delivering earnings surprises in three of the last four reported quarters.

Return on equity in the trailing 12 months was 13.2%, better than the industry average of 6.7%. This highlights the company’s efficiency in utilizing shareholders’ funds.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Can ACGL Retain the Bull Run?

The Zacks Consensus Estimate for 2023 earnings stands at $5.58, suggesting an increase of 37.2% on 18.3% higher revenues of $11.7 billion. The expected long-term earnings growth rate is pegged at 10%, better than the industry average of 9.7%.

Arch Capital has a compelling product portfolio that provides meaningful diversification and earnings stability, with operations spread across geographies. Thus, new business opportunities, rate increases, growth in existing accounts and growth in the Australian single-premium mortgage insurance should help it continue to generate improved premiums.

ACGL’s inorganic growth strategy outlines international expansion, enhancing operations and diversifying the business at attractive risk-adjusted returns. This insurer stays focused on diversifying its Mortgage Insurance business via strategic acquisitions that complement the strength of the specialty insurance and reinsurance businesses.

Arch Capital’s solid balance sheet with high liquidity and low leverage shields it from market volatility. Thus, ACGL is well-poised to retain its financial strength and flexibility required to pursue new opportunities in keeping with its long-term strategy.

This insurer’s solid capital position supports effective capital deployment, which, in turn, enhances shareholders’ value.  The company has an impressive VGM Score of A.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Berkshire Hathaway Inc. (BRK.B), Root, Inc. ROOT and Kinsale Capital Group, Inc. KNSL. While Berkshire and Root each sport a Zacks Rank #1 (Strong Buy), Kinsale Capital carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Berkshire Hathaway’s earnings surpassed estimates in all the last four quarters, the average beat being 28.18%. In the past year, BRK.B has dropped 0.7%.

The Zacks Consensus Estimate for Berkshire’s 2023 earnings indicates a year-over-year increase of 11.9%. The same has moved 12.3% north in the last 60 days.

Root delivered a trailing four-quarter average earnings surprise of 22.44%. In the past year, ROOT has declined 88.9%.

The Zacks Consensus Estimate for Root’s 2023 earnings indicates a year-over-year rise of 24%. The same has moved 2.2% north in the last 60 days.

Kinsale Capital’s earnings surpassed estimates in all the last four quarters, the average being 15.16%. In the past year, Kinsale Capital has rallied 34.5%.

The Zacks Consensus Estimate for KNSL’s 2023 earnings implies a year-over-year rise of 22.3%. The consensus estimate has moved 0.9% north in the last 30 days.

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Zacks Investment Research