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Here's Why Arch Capital (ACGL) Stock is an Attractive Bet

Zacks Equity Research
·4 min read

Arch Capital Group Ltd. ACGL has been in investors' good books on the back of new business, effective capital deployment and sufficient liquidity.

The stock carries a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

The stock has seen its estimates for 2021 and 2022 move up nearly 4.2% and 13.6%, respectively, in the past 30 days that reflects investors’ optimism.

The insurer remains well poised for growth on the back of solid performance across its segments. Reinsurance benefits from the underlying insurance market rate increases through its clients, higher premiums across most of its business lines, which was fueled by new business and rate increases as well as the integration of the Barbican reinsurance business.

By virtue of lower expense ratio, primarily from growth in the premium base and continued lower levels of travel and entertainment expenses, the insurer witnessed lower combined ratio in the Insurance segment.

Its disciplined underwriting and diversified business model enabled Arch to grow its year-end book value per share by 14.7% in 2020. In addition, it continued to maintain a cash and cash equivalent position of $ 695 million, up 11.4% year over year. Cash flow from operating activities in 2020 was $ 2.7 billion, which surged 49.4% from the year-ago period’s levels. Further, it raised an additional $1 billion of capital in the form of long-term senior notes at the end of June 2020.

The company remains committed to enhance its shareholders value. Banking on its strong capital position, the insurer repurchased an additional share of 83.6 million in the first quarter of 2021. Currently, it has $833 million remaining under its share repurchase authorization.

Moreover, it has an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space.

It has a decent earnings surprise history too. Its earnings beat estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 32.14%, on average.

However, shares of this Zacks Rank #2 (Buy) property and casualty insurer have lost 12.3% in the past year compared with the industry’s increase of 12.7%.


Nevertheless, the Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $3.21 and $3.77, indicating year-over-year increase of nearly 136% and 17.4%, respectively. The expected long-term earnings growth rate is 10%, which compares favorably with the industry’s growth rate of 7.3%.

Other Stocks to Consider

Some other top-ranked stocks in the insurance space include Alleghany Y, Cincinnati Financial Corporation CINF and First American Financial Corporation FAF, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alleghany’s bottom line surpassed estimates in two of the last four quarters (missed in the other two), the average beat being 34.08%.

Cincinnati Financial surpassed earnings estimates in two of the last four quarters, with the average surprise being 4.10%.

First American Financial’s bottom line surpassed estimates in three of the last four quarters and missed in one, the average beat being 15.86%.

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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report

Alleghany Corporation (Y) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research