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SIGI Stock Declines 7.4% Year to Date: Should Investors Hold or Fold?
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Selective Insurance Group, Inc. (SIGI - Free Report) shares have lost 7.4% in the year-to-date period against the industry’s 26% growth. It has also underperformed the Finance sector and the Zacks S&P 500 composite’s return of 13.1% and 17.9%, respectively, in the said time frame.
SIGI Lags Industry, Sector and S&P
Image Source: Zacks Investment Research
Selective Insurance has been grappling with higher expenses over the years, primarily due to increasing loss and loss expense incurred and amortization of deferred policy acquisition costs. In the first half of 2024, the loss and loss expense ratio deteriorated 1,070 basis points (bps) year over year.
Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. Such a massive loss poses an inherent risk to the P&C insurance business, inducing volatility in its results. In the first half of 2024, the combined ratio deteriorated 930 bps year over year. SIGI estimates a GAAP combined ratio of 101.5%, up from the prior guidance of 96.5%.
Closing at $92.13 in the last trading session, the stock stands 16% below its 52-week high of $109.58. The stock is trading below the 200-day simple moving average (SMA) of $97.67, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Selective Insurance’s long-term debt of $508.8 million as of June 30, 2024, increased 1% from the 2023 level. Debt-to-total capitalization deteriorated 20 bps to 14.8% from the level as of Dec. 31, 2023. The company’s times interest earned of 16.5 in the first quarter of 2024 was slightly poor compared with 16.9 at the end of 2023, implying that its earnings are insufficient to cover interest obligations.
SIGI’s Expensive Valuation
The stock is overvalued compared with its industry. It currently has a trailing 12-month P/B ratio of 2.06, higher than the industry average of 1.58.
Shares of three other property and casualty insurers, such as NMI Holdings Inc (NMIH - Free Report) , Palomar Holdings, Inc. (PLMR - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) , are also trading at a multiple higher than the industry average.
Negative Analyst Sentiment
Each of the five analysts covering the stock has lowered estimates for 2024 and 2025 over the past 60 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 43.2% and 3.8% south, respectively, in the past 60 days.
While the consensus estimate for 2024 indicates a 34.8% decline from the year-ago reported figure, the consensus estimate for 2025 indicates an increase of 105.7%.
Factors Favoring SIGI Stock
Exposure growth, solid retention rates and higher new business gains in standard commercial and E&S lines should drive premium growth.
Steady betterment of premiums, improved net investment income and higher other income have resulted in top-line improvement. Over the past seven years (2017-2023), total revenues witnessed a CAGR of 8%.
The E&S Lines segment of Selective Insurance is likely to improve because of renewal pure price increases, higher direct new business and favorable E&S lines marketplace conditions.
Given impressive investment results, Selective Insurance estimates an after-tax net investment income of $360 million that includes $32 million from alternative investments for 2024. Higher income earned on fixed-income securities portfolio due to improved book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment is likely to drive the metric.
Impressive Dividend History of Selective Insurance
Riding on a solid capital position, Selective Insurance has been hiking dividends, which registered a nine-year CAGR (2015-2023) of nearly 8.8%. It had $84.2 million remaining under authorization as of June 30, 2024. Riding on strong financial and operating performance, the board has approved a 17% hike in the quarterly cash dividend in November 2023. Such steadfast endeavors buoy confidence among investors, making it an attractive pick for yield-seeking investors. Its dividend yield of 1.5% appears attractive compared with the industry average of 0.2%.
SIGI’s Favorable Return on Capital
Return on equity in the trailing 12 months was 8.7%, better than the industry average of 7.9%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Wrapping Up: Keep on Holding
While Selective Insurance remains well-poised to gain from strong renewal, fuel price increases, favorable excess and surplus (E&S) lines marketplace conditions and higher income earned on fixed-income securities portfolio, the specific challenges facing the company like exposure to catastrophe loss and escalating expenses cannot be ignored.
Despite its expensive valuation, SIGI should benefit from favorable growth estimates, higher return on capital and prudent capital deployment. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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SIGI Stock Declines 7.4% Year to Date: Should Investors Hold or Fold?
Selective Insurance Group, Inc. (SIGI - Free Report) shares have lost 7.4% in the year-to-date period against the industry’s 26% growth. It has also underperformed the Finance sector and the Zacks S&P 500 composite’s return of 13.1% and 17.9%, respectively, in the said time frame.
SIGI Lags Industry, Sector and S&P
Image Source: Zacks Investment Research
Selective Insurance has been grappling with higher expenses over the years, primarily due to increasing loss and loss expense incurred and amortization of deferred policy acquisition costs. In the first half of 2024, the loss and loss expense ratio deteriorated 1,070 basis points (bps) year over year.
Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. Such a massive loss poses an inherent risk to the P&C insurance business, inducing volatility in its results. In the first half of 2024, the combined ratio deteriorated 930 bps year over year. SIGI estimates a GAAP combined ratio of 101.5%, up from the prior guidance of 96.5%.
Closing at $92.13 in the last trading session, the stock stands 16% below its 52-week high of $109.58. The stock is trading below the 200-day simple moving average (SMA) of $97.67, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Selective Insurance’s long-term debt of $508.8 million as of June 30, 2024, increased 1% from the 2023 level. Debt-to-total capitalization deteriorated 20 bps to 14.8% from the level as of Dec. 31, 2023. The company’s times interest earned of 16.5 in the first quarter of 2024 was slightly poor compared with 16.9 at the end of 2023, implying that its earnings are insufficient to cover interest obligations.
SIGI’s Expensive Valuation
The stock is overvalued compared with its industry. It currently has a trailing 12-month P/B ratio of 2.06, higher than the industry average of 1.58.
Shares of three other property and casualty insurers, such as NMI Holdings Inc (NMIH - Free Report) , Palomar Holdings, Inc. (PLMR - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) , are also trading at a multiple higher than the industry average.
Negative Analyst Sentiment
Each of the five analysts covering the stock has lowered estimates for 2024 and 2025 over the past 60 days.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 43.2% and 3.8% south, respectively, in the past 60 days.
While the consensus estimate for 2024 indicates a 34.8% decline from the year-ago reported figure, the consensus estimate for 2025 indicates an increase of 105.7%.
Factors Favoring SIGI Stock
Exposure growth, solid retention rates and higher new business gains in standard commercial and E&S lines should drive premium growth.
Steady betterment of premiums, improved net investment income and higher other income have resulted in top-line improvement. Over the past seven years (2017-2023), total revenues witnessed a CAGR of 8%.
The E&S Lines segment of Selective Insurance is likely to improve because of renewal pure price increases, higher direct new business and favorable E&S lines marketplace conditions.
Given impressive investment results, Selective Insurance estimates an after-tax net investment income of $360 million that includes $32 million from alternative investments for 2024. Higher income earned on fixed-income securities portfolio due to improved book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment is likely to drive the metric.
Impressive Dividend History of Selective Insurance
Riding on a solid capital position, Selective Insurance has been hiking dividends, which registered a nine-year CAGR (2015-2023) of nearly 8.8%. It had $84.2 million remaining under authorization as of June 30, 2024. Riding on strong financial and operating performance, the board has approved a 17% hike in the quarterly cash dividend in November 2023. Such steadfast endeavors buoy confidence among investors, making it an attractive pick for yield-seeking investors. Its dividend yield of 1.5% appears attractive compared with the industry average of 0.2%.
SIGI’s Favorable Return on Capital
Return on equity in the trailing 12 months was 8.7%, better than the industry average of 7.9%. This highlights the company’s efficiency in utilizing shareholders’ funds.
Wrapping Up: Keep on Holding
While Selective Insurance remains well-poised to gain from strong renewal, fuel price increases, favorable excess and surplus (E&S) lines marketplace conditions and higher income earned on fixed-income securities portfolio, the specific challenges facing the company like exposure to catastrophe loss and escalating expenses cannot be ignored.
Despite its expensive valuation, SIGI should benefit from favorable growth estimates, higher return on capital and prudent capital deployment. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.