RLI Lags Industry, Loses 9% YTD: Here's How to Play the Stock

Core Viewpoint - RLI Corp. has underperformed in the market, with an 8.8% decline year to date, trading below its 52-week high and the 50-day moving average, indicating a bearish trend [1] Company Performance - RLI has a market capitalization of $6.9 billion and is trading at a price-to-book ratio of 4.51X, significantly higher than the industry average of 1.62X, indicating that the stock is expensive compared to its peers [4] - The Zacks Consensus Estimate for 2025 earnings is$ 3.08, reflecting a 7.3% year-over-year increase, with revenues projected to rise by 6.6% to $1.8 billion [5] - The consensus estimate for 2026 earnings is$ 3.10, indicating a 0.6% year-over-year increase on revenues of $1.9 billion, which is a 5.9% increase [5] Growth Factors - RLI is positioned for growth due to product diversification, a compelling product portfolio, and a focus on introducing new products, which should enhance its top line [6] - The company has maintained a conservative underwriting and reserving policy, achieving favorable reserve releases from prior years, contributing to its exemplary combined ratio [7][8] Dividend and Financial Health - RLI has a strong dividend track record, having paid dividends for 189 consecutive quarters and increased regular dividends for 49 years, with a five-year CAGR of 8.8% and a dividend yield of 0.8%, outperforming the industry average of 0.3% [9] - The company is strengthening its balance sheet with improved liquidity and leverage, which supports long-term growth in book value [10] Return Metrics - RLI's return on equity (ROE) has improved to 16.6%, significantly higher than the industry average of 7.6%, indicating efficient use of shareholders' funds [11] - The return on invested capital (ROIC) has also improved, although it stands at 2%, which is below the industry average of 5.8% [12] Market Outlook - The average price target for RLI shares is$ 81.80, suggesting a potential upside of 9.2% from the recent closing price [13] - RLI is recognized as one of the most profitable property and casualty writers, with a strong local branch network and a focus on specialty insurance lines, contributing to its superior profitability [14]