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Here's Why You Should Retain Palomar Holdings (PLMR) for Now

Palomar Holdings, Inc. PLMR is well-poised for growth, driven by new partnerships, strong core business, rate increases, higher investment income and effective capital deployment.

Zacks Rank & Price Performance

Palomar currently carries a Zacks Rank #3 (Hold). The stock has gained 12.8% year to date compared with the industry's growth of 8.5%.

Zacks Investment Research
Zacks Investment Research

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Return on Equity (ROE)

ROE, a measure reflecting how efficiently a company utilizes shareholders’ money, was 17.1% in the trailing 12 months, better than the industry’s average of 6.7%.

Style Score

PLMR has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Growth Projections

The Zacks Consensus Estimate for Palomar’s 2023 earnings is pegged at $3.36 per share, indicating a 21.3% increase from the year-ago reported figure on 11.2% higher revenues of $372 million.

The consensus estimate for Palomar’s 2024 earnings is pegged at $3.94 per share, indicating a 17.3% increase from the year-ago reported figure on 24.2% higher revenues of $462 million.

Key Drivers

Palomar’s continuous efforts to sustain revenue momentum and initiatives, such as Palomar 2X, should strengthen its earnings base and revenue growth. Palomar’s premiums are likely to gain from a higher volume of policies written across lines of business, strong premium retention rates for an existing business, expansion of products’ geographic footprint and new partnerships.

The company’s Earthquake business should benefit as the ongoing dislocation in the earthquake market acts as a tailwind. The company would capitalize on this opportunity to grow and optimize its book of business. Palomar’s Inland Marine business should gain from rate increases and an expansion of its distributional and regional footprint. Excess Property Line will continue to be the core of PLMR’s strategy of maximizing profit margins.

Higher policies written through the internal managing general agency and Palomar Insurance Agency are expected to boost the commission and other income of the insurer. Higher yields on invested assets, high-quality fixed-income securities, higher average balance of investments and an increase in fixed-income yields should continue to drive the net investment income going forward. For 2023, Palomar Holdings projects to generate adjusted net income between $89 million and $93 million.

Palomar partnered with USAA to offer its residential earthquake products in California. This should expand the company’s reach. The company acquired XEO Insurance Services, which will boost its professional liability margin and enhance its new specialty products. This move bodes well with the company’s strategic initiative to deliver predictable earnings in the future.

A solid liquidity position enables Palomar to enhance shareholder value via share buybacks. The insurer’s growing cash and cash equivalents indicate sufficient cash reserves to ensure financial stability. With respect to share buybacks, $50 million remained under authorization as of Jun 30, 2023.

Palomar remains committed to protecting its earnings through its current reinsurance program. The company completed the renewal of certain reinsurance programs, beginning Jun 1, 2023, of $188 million for the earthquake business. This move will also reduce earnings volatility in the future. Palomar can also take advantage of additional growth opportunities, given its low-risk profile due to the risk transfer arrangement.

Key Concerns

There are a few factors that have been impeding the stock’s growth lately.

The company has been experiencing an increase in operating expenses due to higher incurred losses and loss adjustment expenses, interest and underwriting expenses.Such costs tend to weigh on the company’s margins. Exposure to catastrophic losses, being a property and casualty insurer, is also significant. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

Stocks to Consider

Some better-ranked stocks from the Property and Casualty insurance industry are HCI Group, Inc. HCI, Axis Capital Holdings Limited AXS and Kinsale Capital Group, Inc. KNSL. HCI Group and Axis Capital presently sport a Zacks Rank #1 (Strong Buy), while Kinsale Capital currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HCI Group beat estimates in each of the last trailing four quarters, the average being 448.4%. In the past year, shares of HCI have gained 9.9%.

The Zacks Consensus Estimate for HCI’s 2023 and 2024 earnings per share (EPS) indicates a year-over-year increase of 159.3% and 33.9%, respectively.

Axis Capital beat estimates in three of the last four quarters and missed once, the average being 9.8%. The Zacks Consensus Estimate for 2023 has moved 2.3% north in the past seven days.

The Zacks Consensus Estimate for AXS’ 2023 and 2024 EPS is pegged at $8.41 and $9.31, indicating a year-over-year increase of 44.8% and 10.7%, respectively. In the past year, shares of AXS have gained 3.1%.

Kinsale Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 14.9%. Year to date, shares of KNSL have rallied 39.6%.

The Zacks Consensus Estimate for KNSL’s 2023 and 2024 EPS is pegged at $11.53 and $14.07, indicating a year-over-year increase of 47.8% and 22%, respectively.

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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report

HCI Group, Inc. (HCI) : Free Stock Analysis Report

Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report

Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report

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