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Everest Group Stock Lags Industry YTD: Should You Hold or Fold?
Everest Everest (US:EG) ZACKSยท2024-09-20 15:56

Core Viewpoint - Everest Group, Ltd. (EG) has shown a year-to-date stock gain of 9.9%, which is below the industry's growth of 16.8% and the S&P 500 composite's return of 17.8% [1] Financial Performance - The stock closed at $388.30, below its 52-week high of $417.92, with a long-term earnings growth rate of 2.3%, lower than the industry average of 12.4% [1] - Total claims and expenses increased by 15.8% to $6.7 billion in the first half of 2024 [2] - Catastrophe losses for the current year reached $236 million for the six months ended June 30, 2024, compared to $142 million in the previous year [3] - The combined ratio deteriorated by 20 basis points in the first half of 2024, primarily due to increased commission and brokerage expenses and higher catastrophe losses [4] Analyst Sentiment - Five out of six analysts covering EG have raised their estimates for 2024, while one has lowered them; the consensus estimate for 2024 has increased by 0.6% [5] - For 2025, two analysts raised estimates while three lowered them, with the consensus estimate for 2025 decreasing by 0.7% [5] - The Zacks Consensus Estimate indicates an improvement of 11% for 2024 and 11.2% for 2025 earnings [5] Return on Capital - EG's trailing 12-month return on equity is 24%, surpassing the industry average of 16% [6] - The return on invested capital in the trailing 12 months was 16.6%, significantly better than the industry average of 2.5% [6] Stock Performance - The stock is trading above the 50-day and 200-day simple moving averages of $381.33 and $377.02, indicating solid upward momentum [7] Growth Drivers - Key growth drivers for EG include global presence, product diversification, rate increases, and a high retention rate [8] - The Insurance segment is expected to benefit from an increase in property and short-tail business, as well as a rise in specialty casualty business [8] - The Reinsurance segment is poised for growth due to opportunities arising from the ongoing disruption and evolution of the reinsurance market [8] Investment Income - Net investment income is expected to benefit from higher income from the fixed income portfolio, increased limited partnership income, and higher dividend income from the equity portfolio [9] Capital Position - Everest Group has a strong capital position, with sufficient cash generation capabilities and a target long-term debt leverage ratio of 15-20% over the next three years [10] - The board approved a 14.3% increase in its quarterly dividend, with $163 million paid in dividends to enhance long-term expected returns to shareholders [11] Valuation - The stock is currently undervalued, trading at a price-to-book multiple of 1.19, lower than the industry average of 2.63 [12] - EG has an impressive Value Score of A, indicating strong valuation metrics compared to peers [12] Conclusion - Higher income from the fixed income portfolio, product diversification, favorable estimates, strong renewal retention, and prudent capital deployment position Everest Group as a strong investment candidate [13]