Palomar Holdings (PLMR) Rises 43% in a Year: What's Driving It?
Palomar Holdings, Inc.’s PLMR shares have jumped 43% in a year compared with the industry's growth of 19%. The Finance sector and the Zacks S&P 500 composite have risen 19.4% and 26.1%, respectively, in the same time frame. With a market capitalization of $2.03 billion, the average volume of shares traded in the last three months was 0.15 million.
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The rally was largely driven by new business, strong retention rates, strategic expansion of products’ geographic and distribution footprint, new partnerships and high-quality fixed-income securities.
This Zacks Rank #1 (Strong Buy) insurer has a solid earnings surprise history. It beat estimates in each of the last four quarters, the average being 15.10%
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 4% and 3.9% north, respectively, in the past 60 days, reflecting analysts’ optimism on the stock.
Will the Bull Run Continue?
The Zacks Consensus Estimate for Palomar Holdings’s 2024 earnings per share indicates an increase of 26% from the year-ago reported number. The consensus estimate for revenues is pegged at $500.48 million, implying a year-over-year improvement of 34.1%.
The consensus estimate for 2025 earnings per share and revenues indicates an increase of 18.1% and 24.8%, respectively, from the corresponding 2024 estimates.
Return on equity of 22.3% compared favorably with the industry’s average of 7.8%. Annualized adjusted return on equity expanded 200 basis points year over year to 22.9% in the first quarter of 2024. Also, the return on invested capital in the trailing 12 months was 17.8%, better than the industry average of 5.9% and reflecting the company’s efficiency in utilizing funds to generate income.
Premiums, which are the principal component of an insurer’s top line, should continue to benefit from the increased volume of policies written across the lines of business. New business generated, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships should help in retaining the momentum.
High-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields favor improvement in net investment income, which witnessed a five-year CAGR (2018-2023) of 49%.
Palomar Holdings’ fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.
The company’s prudent underwriting expertise is reflected in its combined ratio, which has been under 95% since 2017, except in 2020. PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility.
Palomar Holdings has a debt-free balance sheet. Continued operational excellence also helps it maintain a strong capital position.
PLMR expects to generate adjusted net income between $113 million and $118 million in 2024.
Other Stocks to Consider
Some other top-ranked stocks from the property and casualty insurance industry are Root, Inc. ROOT, Skyward Specialty Insurance Group, Inc. SKWD and RLI Corp. RLI. While Root and Skyward Specialty sport a Zacks Rank #1 each, RLI carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Root has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 34.09%. In the past year, ROOT has skyrocketed 489.7%.
The Zacks Consensus Estimate for ROOT’s 2024 and 2025 earnings implies year-over-year growth of 60.6% and 37.5%, respectively.
Skyward Specialty has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 30.45%. In the past year, SKWD has climbed 45.6%.
The Zacks Consensus Estimate for SKWD’s 2024 and 2025 earnings implies year-over-year growth of 31.7% and 9.8%, respectively.
RLI has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 132.39%. In the past year, RLI has gained 1.7%.
The Zacks Consensus Estimate for RLI’s 2024 and 2025 earnings implies year-over-year growth of 18.4% and 3.8%, respectively.
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