Everest Group, Ltd. (EG): Analyzing a Promising Cheap Stock Recommended By Hedge Funds

We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where Everest Group, Ltd. (NYSE:EG) stands against the other very cheap stocks to buy according to hedge funds.

As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.

Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.

This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.

The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.

Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.

The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.

Methodology:

We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.

In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here.)

A modern insurance policy with a pen resting on top, symbolic of a client signing it.

Everest Group, Ltd. (NYSE:EG)

Number of Hedge Fund Holders: 40

PE Ratio as of August 1: 5.45

Everest Group (NYSE:EG), is a global underwriting leader providing best-in-class property, casualty, and specialty reinsurance and insurance solutions. EG has a PE ratio of 5.45 with hedge fund sentiments of 40 in Q1 2024. Joe Dimenna’s ZWEIG DIMENNA PARTNERS is the shareholder in the company, with 79,909 shares worth $30.45 million. The average Wall Street analyst price target for Everest Group, Ltd. (NYSE:EG) is $427.67, which presents a 17.45% upside potential from the current price of $364.13.

Seasonality affects the firm’s performance; catastrophe (cat) losses (hurricane risk) are a major factor; these losses are concentrated in Q3 2024 and may extend into Q4 2024. Everest Group’s stock has increased somewhat during the previous 12 months, mostly staying in the $360-$400 region. Although the company has benefited from a calm catastrophe environment, it has only gained 4% since May, underperforming the market’s 8% rise.

Everest announced strong earnings in Q2 2024, with gross premiums up 13% to $4.7 billion from the same quarter the previous year. A net income of $724 million was recorded, up from $670 million in the second quarter of 2023. The company generated underwriting profits of $358 million, resulting in a combined ratio of 90.3% overall. Cat losses, however, were modest at $135 million as compared to $27 million in the same quarter the prior year, which had an impact on the attritional combined ratio. With an 88.9% combined ratio and a $303 million underwriting profit, the reinsurance unit fared better than expected. In contrast, the insurance unit fell short of expectations, with a consolidated ratio of 94.4% and a mere $54 million in underwriting profit.

Everest has grown its reinsurance business, and its total premiums have increased to $3.2 billion, a 16.5% increase from the same quarter the previous year. Performance was poor, even though the insurance division increased by 6% to $1.5 billion.

Even though Everest’s investment income increased to a record $528 million in Q2 due to higher rates, it’s still uncertain whether there will be any major upside triggers. There are obstacles because of catastrophe risk and poor underwriting performance, particularly given the uncertain hurricane season that lies ahead.

In 2023, the company’s annual revenue grew by 20.95% YoY. Revenue in Q1 FY2024 increased by 25.78% compared to the same quarter last year due to higher premiums earned and net investment income.

Everest Re Group’s insurance combined ratio target of 2025 is within reach, as it expects to finish 2024 with a quarterly run rate of 93% to 94%.

The firm is comfortably within its risk appetite and seeks to tilt its portfolio towards the most promising profit prospects worldwide. Before the year ends, EG intends to join the Italian market and concentrate on growing in the areas it has already reached.

Even with the possibility of hurricane risks, Everest Group (NYSE:EG) is an appealing investment due to its outstanding Q2 performance and cash reserves, which position it well for growth. Its potential for ongoing financial stability and market prospects should be taken into account by investors.

Overall EG ranks 9th on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of EG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.