Forget Root Inc., Buy These 3 Insurance Stocks Instead Personal insurance provider Root (ROOT) is suffering depressed profit margins due to rising costs and intense competition. However, the global insuran...
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Personal insurance provider Root (ROOT) is suffering depressed profit margins due to rising costs and intense competition. However, the global insurance industry is recovering, bolstered by rising demand. Thus, fundamentally sound insurance companies Loews Corporation (L), AXIS Capital Holdings (AXS), and Stewart Information Services (STC) could be better bets now. Read on.
Technology-based personal insurance company Root, Inc. (ROOT) has been facing operational challenges due to rising costs and intense competition. Despite a 19.1% rise in direct earned premiums in its fiscal second quarter (ended June 30), the company failed to generate profits. Its adjusted gross loss came in at $4 million, down from a $16 million gross profit generated in the prior-year quarter. ROOT's financials are expected to remain under pressure in the near term. Analysts expect its revenues to decline 59.7% year-over-year to $65.90 million in the third quarter (ending September 2021), while its EPS is expected to remain negative until at least 2022. The stock has lost 62.9% in price year-to-date.
However, the insurance industry has been recovering from pandemic-driven disruptions. And a rising demand for customized assistance should drive the specialty insurance industry's growth in the long run. Indeed, the global specialty insurance market is expected to grow at a 9.3% CAGR over the next nine years to $178.52 billion by 2030. Moreover, because analysts and industry experts predict a potential tapering of monetary policy ahead of Fed's proposed timeline, the insurance industry's profit margins are likely to improve.
Given this backdrop, we think insurance stocks Loews Corporation (L), AXIS Capital Holdings Limited (AXS), and Stewart Information Services Corporation (STC), with solid profit margins and rosy growth prospects, are better bets than ROOT now.
Loews Corporation (L)
L is a New York City-based holding company that sells commercial and casualty insurance and engages in drilling, production, and transportation of crude oil and natural gas. It operates through four wholly owned subsidiaries—CNA Financial Corporation, Diamond Offshore Drilling, Inc., Boardwalk Pipeline Partners LP, and Loews Hotels Holding Corporation.
L's revenues increased 73.3% year-over-year to $4 billion in its fiscal second quarter, ended June 30. Its total net investment gains increased 149.5% from the same period last year to $450 million. This can be attributed to a 144.5% rise in "Corporate' investment gains. Its net income came in at $754 million, representing a substantial rise from its negative year-ago value.
Lower catastrophe losses, higher property and casualty underwriting results, and strengthening oil demand have been major factors driving the company's earnings in the second quarter. Also, with leisure travel picking up pace, boding well for L's hotel divisions, the company is expected to achieve stable growth over an extended period. Analysts expect L's EPS to rise at a 14% CAGR over the next five years. Shares of L have gained 50.4% over the past year and 21.5% year-to-date.
L has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Sentiment, Stability, and Value. Of the 55 stocks in the Insurance – Property & Casualty industry, L is ranked #2.
In addition to the grades we've highlighted, one can view L ratings for Momentum and Quality here.
AXIS Capital Holdings Limited (AXS)
Based in Bermuda, AXS sells diversified insurance and reinsurance products to customers and insurance companies. It provides property, professional, marine, and health insurance, and reinsurance products. The company has an ISS Governance QualityScore of 1, indicating minimal governance risk.
For its fiscal second quarter, ended June 30, AXS' revenues increased 11.3% year-over-year to $1.34 billion. Its net investment income grew 132.4% from the same period last year to $104.67 million. Its net income stood at $235.47 million, up 96.2% from the prior-year quarter. And its EPS improved 100.8% from the same period last year to $2.67.
AXS' operating subsidiaries have credit ratings of "A+" by Standard and Poor's and "A" by A.M. Best. Its high credit rating reflects the company's strong financial and cash position, which should fuel the company's growth in the specialty lines and treaty insurance industries.
A $1.02 billion consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates a 24.6% rise year-over-year. Analysts expect the company's EPS to rise 205.2% from the same period last year to $0.81 in the current quarter. AXS has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. AXS has gained 17.5% over the past year and 6.3% year-to-date to close yesterday's trading session at $53.56.
AXS has a B grade for Growth and Stability in our proprietary rating system. In addition, it is ranked #10 in the same industry.
Click here to view additional AXS ratings for Momentum, Sentiment, Quality, and Value.
Stewart Information Services Corporation (STC)
STC is a title insurance and real estate transaction services provider that operates in the United States, Canada, Australia, United Kingdom, and Central Europe. It functions through two segments: Title Insurance and Related Services; and Ancillary Services and Corporate. STC is based in Houston, Tex.
STC's operating revenues increased 58% year-over-year to $802 million in its fiscal second quarter, ended June 30. Its net income and EPS improved 178% and 143.1%, respectively, to $94.80 million and $3.50.
STC's member companies have a financial strength rating of A- (Excellent) and a long-term issuer credit rating of A- from AM Best. In addition, STC's parent company has a long-term issuer credit rating of BBB-. These ratings reflect STC's strong balance sheet, adequate operating performance, appropriate enterprise risk management, and neutral business profile.
It was ranked #24 on The Financial Technology Report's annual Top 100 Financial Technology Companies list on August 24. This recognition reflects the company's impressive performance over the past year, paving the path to becoming a premier title services company.
The Street expects STC's revenues and EPS to rise 35.8% and 5%, respectively, year-over-year to $746.95 million and $2.32 in its fiscal third quarter (ending September 2021). STC has gained 44.4% over the past year and 21.9% year-to-date.
It's no surprise that STC has an overall B rating, which translates to Buy in our POWR Ratings system. The stock also has a B grade for Sentiment and Value. In addition, it is ranked #1 of 6 stocks in the Insurance – Title industry.
Beyond what we've stated above, we have rated STC for Growth, Momentum, Stability, and Quality. View all STC ratings here.
L shares were trading at $54.63 per share on Thursday afternoon, down $0.07 (-0.13%). Year-to-date, L has gained 21.77%, versus a 18.48% rise in the benchmark S&P 500 index during the same period.
Loews Corporation (L) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do's and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
