This is why a holding strategy is right for selective insurance (SIGI) – March 27, 2024

This is why a holding strategy is right for selective insurance (SIGI) – March 27, 2024
This is why a holding strategy is right for selective insurance (SIGI) – March 27, 2024

Selective Insurance Group, Inc. (SIGI Free report) was favored by investors amid strong recovery, increases in fuel prices, favorable market conditions for surplus and surplus (E&S) lines and higher income earned by the fixed income portfolio.

Growth forecasts

The Zacks Consensus Estimate for Selective Insurance’s 2024 earnings per share points to an annualized increase of 30.3% over the consensus estimate for 2023. The consensus estimate for revenue is pegged at $4.86 billion, which means an improvement on the year-over-year a base of 14.7% of the 2023 consensus mark.

The consensus estimate for 2025 earnings per share indicates an annual increase of 10.1% over the consensus estimate for 2024. The 2025 revenue estimate is pegged at $5.31 billion, implying an annual improvement of 9.3% over the previous year consensus mark of 2024.

The expected long-term earnings growth rate is 18.1%, beating the industry average of 12.2%.

Forecast revision to the north

The Zacks Consensus Estimate for 2024 and 2025 earnings have moved 0.1% and 0.9% north, respectively, over the past 60 days, reflecting analyst optimism.

Zacks Rank and Price Performance

SIGI currently carries a Zacks Rank #3 (Hold). Over the past year, the stock has gained 13.6%, compared to an industry gain of 33.7%.

Score for style

Selective Insurance has a VGM Score of B. The VGM Score helps identify stocks with the most attractive value, best growth and most promising momentum.

Business headwind

Strong renewals, fuel price increases, exposure growth, solid retention rates and higher new business wins in standard commercial and E&S lines should drive premium growth.

Steady improvement in premiums led to an improvement in the top line. Over the past seven years (2017-2023), the total revenue has witnessed a CAGR of 8%.

The E&S Lines segment of selective insurance is likely to improve due to renewal rate increases, greater direct new business and favorable E&S lines market conditions.

Given the impressive investment performance, for 2024 Selective Insurance projects after-tax net investment income of $360 million, which includes after-tax net investment income from alternative investments of $32 million. Higher income from a portfolio of fixed income securities due to improved accounting yield from investing operating and investing cash flows over the past year in a higher interest rate environment is likely to boost the benchmark.

Backed by a solid capital position, the company is growing dividends, which register a nine-year (2015-2023) CAGR of nearly 8.8%. It had $84.2 million of shares remaining under its authorization as of December 31, 2023. Based on strong financial and operational results, the board approved a 17% increase in the quarterly cash dividend in November 2023. Such unwavering efforts reinforce confidence among investors, which making it an attractive choice for profit-seeking investors.

Stocks to consider

Some better ranked stocks from the property and casualty insurance industry are HCI Group, Inc. (HCl Free report), Palomar Holdings, Inc. (PLMR Free report) and Axis Capital Holdings Limited (AXS Free report). While HCI Group and Palomar Holdings have a Zacks Rank #1 (Strong Buy), Axis Capital carries a Zacks Rank #2 (Buy) currently. You can see the full list of today’s Zacks #1 Rank stocks here.

HCI Group has a solid track record of beating earnings estimates in each of the last four quarters, averaging 522.51%. Over the past year, HCI has grown 118.8%.

The Zacks Consensus Estimate for HCI’s 2024 and 2025 earnings suggests annualized growth of 37.9% and 11.6%, respectively, over the consensus estimate for the respective years.

Palomar Holdings has a solid track record of beating earnings estimates in each of the past four quarters, averaging 11.12%. In the past year, PLMR has risen by 55.6%.

The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings suggests annualized growth of 16.2% and 18%, respectively, over the consensus estimate for the respective years.

Axis Capital has a solid track record of beating earnings estimates in each of the last four quarters, averaging 102.57%. Over the past year, AXS has gained 19.2%.

The Zacks Consensus Estimate for AXS’s 2024 and 2025 earnings suggests annual growth of 3% and 10%, respectively, over the consensus estimate for the respective years.

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