It has been about a month since the last earnings report for Markel (MKL). Shares have added about 9.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Markel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Markel's Q3 Earnings Lag, Revenues Top Estimates
Markel Corporation reported third-quarter 2022 earnings of $13.17 per share, which missed the Zacks Consensus Estimate by about 25.4%. The bottom line decreased 4.4% year over year.
Markel witnessed higher earned premiums and lower net investment income, which were offset by higher expenses and deterioration in the combined ratio.
Quarterly Operational Update
Total operating revenues of $3.4 billion beat the Zacks Consensus Estimate by 4.3%. The top line rose 23.6% year over year on higher earned premiums, products revenues, services and other revenues. The increase was partly offset by lower net investment income.
Earned premiums increased 20% in the quarter. The increase was due to continued growth in gross premium volume from new business, strong policy retention levels, more favorable rates and expanded product offerings.
Net investment income increased 18% year over year to $107.7 million in the third quarter, driven by higher interest income on short-term investments due to higher short-term interest rates in 2022.
Total operating expenses of Markel increased 22.4% year over year to about $3 billion, primarily due to higher losses and loss adjustment expenses, underwriting, acquisition and insurance expenses, products expenses, services and other expenses and amortization of intangible assets.
Markel’s combined ratio was flat year over year at 93 in the reported quarter.
Insurance: Gross premium increased 21% year over year to $2.3 billion. The uptick was driven by new business volume, strong policy retention levels, more favorable rates and expanded product offerings, resulting in growth across all its product lines, most notably in general liability and professional liability product lines as well as notable growth within marine and energy product lines.
Underwriting profit came in at $85.5 million, down 42% year over year. The combined ratio deteriorated 560 bps year over year to 95.
Reinsurance: Gross premiums decreased 1% year over year to $179.5 million, attributable to lower gross premiums within professional liability and property product lines, partly offset by higher gross premiums within several of other product lines, driven by more favorable premium adjustments and a favorable impact from the timing of renewal.
Underwriting profit of $43.3 million rebounded from the year-ago quarter’s loss of $30.4 million. The combined ratio improved 2870 bps year over year to 83.4 in the third quarter.
Markel Ventures: Operating revenues of $1.2 billion improved 34% year over year. Operating income of $60.5 million increased 10% year over year.
Markel exited the third quarter with investments, cash and cash equivalents of $4.8 billion as of Sep 30, 2022, down 1% from 2021 end.
The debt balance decreased 5.3% year over year to $4.1 billion as of Sep 30, 2022. The debt-to-capital ratio was 33.6% as of Sep 30, 2022, reflecting a deterioration of 340 basis points from 2021 end.
Book value per share decreased 16.2% from year-end 2021 to $868.68 as of Sep 30, 2022 attributable to comprehensive loss to shareholders for the nine months ended Sep 30, 2022.
Net cash provided by operating activities was $1.9 billion year to date, up 15.9% year over year, driven by higher net premiums within Insurance segment, partially offset by $101.9 million of payments made in connection with the Markel CATCo buy-out transaction.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, Markel has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Markel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Markel is part of the Zacks Insurance - Property and Casualty industry. Over the past month, First American Financial (FAF), a stock from the same industry, has gained 10.3%. The company reported its results for the quarter ended September 2022 more than a month ago.
First American Financial reported revenues of $1.82 billion in the last reported quarter, representing a year-over-year change of -28.6%. EPS of $1.62 for the same period compares with $2.15 a year ago.
For the current quarter, First American Financial is expected to post earnings of $1.44 per share, indicating a change of -36.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for First American Financial. Also, the stock has a VGM Score of B.
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