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EG Stock Lags Industry Year to Date: Should Investors Hold or Fold?
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Shares of Everest Group, Ltd. (EG - Free Report) have gained 10.1% year to date, underperforming the industry’s growth of 24.1% and the Zacks S&P 500 composite’s return of 25.4%.
EG Lags Industry & S&P YTD
Image Source: Zacks Investment Research
Closing at $389.00 in the last trading session, the stock stands below its 52-week high of $417.04. The expected long-term earnings growth rate is pegged at 2.3%, lower than the industry average of 12.5%.
The insurer has been experiencing an increase in expenses due to higher incurred losses and loss adjustment expenses, commission, brokerage, taxes and fees and other underwriting expenses. The company should continue to generate revenues at a higher magnitude than expenses. In the first nine months of 2024, total claims and expenses increased 15% to $10.4 billion.
Everest Group remains exposed to catastrophe losses, which causes earnings to fluctuate. The current year’s catastrophe losses of $546 million for the nine months ended Sept. 30, 2024, were wider than the year-ago period's catastrophe losses of $317 million. The losses were related primarily to Hurricane Helene and Hurricane Beryl.
The combined ratio deteriorated 70 basis points to 90.8 in the first nine months of 2024. EG estimates pre-tax net catastrophe losses to be in the range of $300-$400 million for the fourth quarter, net of any estimated recoveries or reinstatement premiums. The estimated range projects a total insurance industry loss of $25-$35 billion.
Negative Analyst Sentiment
Four of the six analysts covering the stock have lowered estimates for 2024 and 2025 over the past 30 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 4.9% and 0.1% south, respectively, in the past 30 days.
While the consensus estimate for 2024 indicates a 12.7% decline from the year-ago reported figure, the consensus estimate for 2025 suggests an increase of 15.2%.
EG’s Return on Capital
EG’s trailing 12-month return on equity is 22.4%, ahead of the industry average of 15.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Also, the return on invested capital in the trailing 12 months was 15.6%, better than the industry average of 2.5%. This reflects the company’s efficiency in utilizing funds to generate income.
Trading Above 50-Day & 200-Day Moving Average
The stock is trading above the 50-day and 200-day simple moving averages (SMA) of $380.76 and $378.78, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Key Drivers of Everest Group
Global presence, product diversification, rate increase and high retention rate continue to drive EG’s overall growth. The Insurance segment is poised to benefit from an increase in property and short tail business and a rise in specialty casualty business. On the other hand, leveraging opportunities stemming from the continued disruption and evolution of the reinsurance market should poise the Reinsurance segment for growth.
Net investment income stands to benefit from higher income from the fixed income portfolio, an increase in limited partnership income, a rise in dividend income from the equity portfolio and higher income from other invested assets. An improved interest rate environment adds to the upside.
Everest Group has a strong capital position, banking on sufficient cash generation capabilities and benefits from capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The multi-line insurer targets a 15-20% long-term debt leverage ratio for three years.
EG’s Capital Deployment
Everest Group is expected to benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. In May 2024, its board approved a 14.3% hike in its quarterly dividend. EG paid $86 million in dividends during the third quarter of 2024. Everest Group targets a total shareholder return on equity of more than 17% from 2024 to 2026. It reflects the robust and well-diversified earnings power of Everest. EG expects to make consistent payouts, along with buybacks, given its disciplined capital management strategy and strong capital balance.
EG Shares are Affordable
The stock is undervalued compared with its industry. It is currently trading at a price-to-book multiple of 1.09, lower than the industry average of 2.41. The insurer has an impressive Value Score of A.
Shares of other multi-line insurers like Radian Group Inc. (RDN - Free Report) , Assurant, Inc. (AIZ - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) are also trading at a discount to the industry average.
Conclusion
Higher income from the fixed income portfolio, product diversification, favorable estimates, strong renewal retention, prudent capital deployment and a solid capital position make Everest Group a strong contender for being in one’s portfolio.
However, the specific challenges facing the company like exposure to catastrophe losses, escalating expenses and high leverage cannot be ignored.
Image: Bigstock
EG Stock Lags Industry Year to Date: Should Investors Hold or Fold?
Shares of Everest Group, Ltd. (EG - Free Report) have gained 10.1% year to date, underperforming the industry’s growth of 24.1% and the Zacks S&P 500 composite’s return of 25.4%.
EG Lags Industry & S&P YTD
Image Source: Zacks Investment Research
Closing at $389.00 in the last trading session, the stock stands below its 52-week high of $417.04. The expected long-term earnings growth rate is pegged at 2.3%, lower than the industry average of 12.5%.
The insurer has been experiencing an increase in expenses due to higher incurred losses and loss adjustment expenses, commission, brokerage, taxes and fees and other underwriting expenses. The company should continue to generate revenues at a higher magnitude than expenses. In the first nine months of 2024, total claims and expenses increased 15% to $10.4 billion.
Everest Group remains exposed to catastrophe losses, which causes earnings to fluctuate. The current year’s catastrophe losses of $546 million for the nine months ended Sept. 30, 2024, were wider than the year-ago period's catastrophe losses of $317 million. The losses were related primarily to Hurricane Helene and Hurricane Beryl.
The combined ratio deteriorated 70 basis points to 90.8 in the first nine months of 2024. EG estimates pre-tax net catastrophe losses to be in the range of $300-$400 million for the fourth quarter, net of any estimated recoveries or reinstatement premiums. The estimated range projects a total insurance industry loss of $25-$35 billion.
Negative Analyst Sentiment
Four of the six analysts covering the stock have lowered estimates for 2024 and 2025 over the past 30 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 4.9% and 0.1% south, respectively, in the past 30 days.
While the consensus estimate for 2024 indicates a 12.7% decline from the year-ago reported figure, the consensus estimate for 2025 suggests an increase of 15.2%.
EG’s Return on Capital
EG’s trailing 12-month return on equity is 22.4%, ahead of the industry average of 15.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Also, the return on invested capital in the trailing 12 months was 15.6%, better than the industry average of 2.5%. This reflects the company’s efficiency in utilizing funds to generate income.
Trading Above 50-Day & 200-Day Moving Average
The stock is trading above the 50-day and 200-day simple moving averages (SMA) of $380.76 and $378.78, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Key Drivers of Everest Group
Global presence, product diversification, rate increase and high retention rate continue to drive EG’s overall growth. The Insurance segment is poised to benefit from an increase in property and short tail business and a rise in specialty casualty business. On the other hand, leveraging opportunities stemming from the continued disruption and evolution of the reinsurance market should poise the Reinsurance segment for growth.
Net investment income stands to benefit from higher income from the fixed income portfolio, an increase in limited partnership income, a rise in dividend income from the equity portfolio and higher income from other invested assets. An improved interest rate environment adds to the upside.
Everest Group has a strong capital position, banking on sufficient cash generation capabilities and benefits from capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. The multi-line insurer targets a 15-20% long-term debt leverage ratio for three years.
EG’s Capital Deployment
Everest Group is expected to benefit from its capital adequacy, financial flexibility, long-term operating performance and traditional risk management capabilities. In May 2024, its board approved a 14.3% hike in its quarterly dividend. EG paid $86 million in dividends during the third quarter of 2024. Everest Group targets a total shareholder return on equity of more than 17% from 2024 to 2026. It reflects the robust and well-diversified earnings power of Everest. EG expects to make consistent payouts, along with buybacks, given its disciplined capital management strategy and strong capital balance.
EG Shares are Affordable
The stock is undervalued compared with its industry. It is currently trading at a price-to-book multiple of 1.09, lower than the industry average of 2.41. The insurer has an impressive Value Score of A.
Shares of other multi-line insurers like Radian Group Inc. (RDN - Free Report) , Assurant, Inc. (AIZ - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) are also trading at a discount to the industry average.
Conclusion
Higher income from the fixed income portfolio, product diversification, favorable estimates, strong renewal retention, prudent capital deployment and a solid capital position make Everest Group a strong contender for being in one’s portfolio.
However, the specific challenges facing the company like exposure to catastrophe losses, escalating expenses and high leverage cannot be ignored.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.