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Markel (MKL) Down 4.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Markel (MKL - Free Report) . Shares have lost about 4.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Markel due for a breakout? 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 Q1 Earnings Miss Estimates, Increase Y/Y

Markel Corporation reported first-quarter 2022 earnings of $11.33 per share, which missed the Zacks Consensus Estimate by about 32.5%. The bottom line, however, increased 11.9% year over year.

Markel witnessed an improved combined ratio and higher earned premiums, which were partially offset by higher expenses and lower net investment income.

Quarterly Operational Update     

Total operating revenues of $2.9 billion beat the Zacks Consensus Estimate by 7.7%. The top line rose 24.9% 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 17% in the quarter. The increase was due to continued growth in gross premium volume from new business and more favorable rates.

Net investment income decreased 25% year over year to $72.7 million in the first quarter. The decrease was due to the losses on equity method investments.

Total operating expenses of Markel increased 22.9% year over year to $2.6 billion, primarily due to higher losses and loss adjustment expenses, underwriting, acquisition and insurance expenses, products expenses, services and other expenses, amortization of intangible assets.

Markel’s combined ratio improved 500 basis points (bps) year over year to 89 in the reported quarter. The combined ratio in the reported quarter improved due to a lower current accident year loss ratio as a result of lower catastrophe losses as well as a lower attritional loss ratio.

Segment Update

Insurance: Gross premium increased 19% year over year to $1.9 billion. The uptick was driven by new business volume, more favorable rates and expanded product offerings which resulted in growth across all product lines, notably professional liability and general liability product lines. Underwriting profit came in at $187.5 million, up 60% year over year. The combined ratio improved 330 bps year over year to 87.3.

Reinsurance: Gross premiums increased 8% year over year to $576.3 million. The uptick was due to higher renewals and new business within professional liability and general liability product lines. More favorable premium adjustments within credit and surety, professional liability and general liability product lines also contributed to the increase. It was partially offset by lower gross premiums within workers' compensation and property product lines.

Underwriting profit of $13.3 million rebounded from the year-ago quarter’s loss of $23.2 million. The combined ratio improved 1380 bps year over year to 95.3 in the first quarter.

Markel Ventures: Operating revenues of $950.4 million improved 34.5% year over year. Operating income of $49.7 million decreased 3% year over year.

Financial Update

Markel exited the first quarter with investments, cash and cash equivalents and restricted cash and cash equivalents (invested assets) of $28.3 billion as of Mar 31, 2022, unchanged from 2021 end.

The debt balance increased 1.5% year over year to $4.4 billion as of Mar 31, 2022. The debt-to-capital ratio was 24% as of Mar 31, 2022, down 100 basis points from 2021 end. It reflects a decrease in shareholders' equity, primarily attributable to other comprehensive losses to shareholders for the three months ended Mar 31, 2022.

Book value per share decreased 4% from year-end 2021 to $995.53 as of Mar 31, 2022. The decrease was primarily due to other comprehensive losses to shareholders for the three months ended Mar 31, 2022.

Net cash provided by operating activities was $414.9 million in the first quarter of 2022, up 30.4% year over year. The increase was primarily driven by higher net premium volumes across both of the underwriting segments. It was partially offset by higher claims settlement activity in the Insurance segment and $101.9 million of payments made in connection with the Markel CATCo buyout.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Markel has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Markel has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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