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Arch Capital (ACGL) Up 28% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Arch Capital Group (ACGL - Free Report) . Shares have added about 28% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arch Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q1 Earnings Miss, Revenues Rise Y/Y
Arch Capital reported first-quarter 2020 operating income per share of 46 cents, which missed the Zacks Consensus Estimate by 14.8%. Moreover, the bottom line deteriorated 31.3% year over year.
The quarter benefited from improving premiums across Insurance, Reinsurance and Mortgage segments, offset by higher expenses.
Q1 in Detail
Gross premiums written increased 36.3% year over year to $2.8 billion, largely fueled by higher premiums written across the Insurance, Reinsurance and Mortgage segments.
Net investment income declined 6.8% to $113 million due to reinvestment of fixed income securities at lower yields available in the financial market.
Operating revenues of $1.9 billion improved 24.3% year over year on the back of higher premiums earned.
Interest expenses were $25.2 million, up 7.5% year over year.
Total expenses of $1.6 billion increased 35% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, corporate expenses and interest expenses.
Arch Capital’s underwriting income came in at $154 million, down 40.8% year over year. Combined ratio deteriorated 980 basis points (bps) to 91.5%.
Segment Results
Insurance: Gross premiums written grew 28.2% year over year to $1.2 billion, driven by increases in most lines of business, primarily due to new business opportunities, rate increases and growth in existing accounts. Underwriting loss came in at $28.2 million against the underwriting profit of $0.6 million year over year. Combined ratio deteriorated 400 bps to 103.9%.
Reinsurance: Gross premiums written rose 64.4% year over year to $1.1 billion, driven by increases in most lines of businesses, primarily due to growth in existing accounts, new businesses, including premiums written through Barbican acquired in fourth-quarter 2019, and rate increases.
Underwriting loss came in at $9.4 million against the underwriting profit of $20.9 million. Combined ratio deteriorated 680 bps year over year to 102%.
Mortgage: Gross premiums written increased 3.6% year over year to $368.9 million on the back of an increase in monthly premium business due to growth in insurance in force and lower ceded premiums. Underwriting income decreased 19% to $197.6 million. Combined ratio deteriorated 1850 bps year over year to 44.1%. Arch MI U.S. generated $16.8 billion of new insurance written compared with $11.2 billion in the year-ago quarter, driven by higher mortgage refinance activity.
Financial Update
Arch Capital exited the quarter with cash of $882.3 million, up 39.3% year over year. Debt was $1.8 billion, up 0.03% year over year. As of Mar 31, 2020, book value per share was $26.10, up 12.9% year over year.
Operating return on equity was 7.1% in the first quarter, down 520 basis points.
Net cash provided by operating activities was $585.9 million, up 254.2% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -101.88% due to these changes.
VGM Scores
Currently, Arch Capital has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Arch Capital has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Arch Capital (ACGL) Up 28% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Arch Capital Group (ACGL - Free Report) . Shares have added about 28% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arch Capital due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Arch Capital Q1 Earnings Miss, Revenues Rise Y/Y
Arch Capital reported first-quarter 2020 operating income per share of 46 cents, which missed the Zacks Consensus Estimate by 14.8%. Moreover, the bottom line deteriorated 31.3% year over year.
The quarter benefited from improving premiums across Insurance, Reinsurance and Mortgage segments, offset by higher expenses.
Q1 in Detail
Gross premiums written increased 36.3% year over year to $2.8 billion, largely fueled by higher premiums written across the Insurance, Reinsurance and Mortgage segments.
Net investment income declined 6.8% to $113 million due to reinvestment of fixed income securities at lower yields available in the financial market.
Operating revenues of $1.9 billion improved 24.3% year over year on the back of higher premiums earned.
Interest expenses were $25.2 million, up 7.5% year over year.
Total expenses of $1.6 billion increased 35% year over year on higher losses and loss adjustment expenses, acquisition expenses, other operating expenses, corporate expenses and interest expenses.
Arch Capital’s underwriting income came in at $154 million, down 40.8% year over year. Combined ratio deteriorated 980 basis points (bps) to 91.5%.
Segment Results
Insurance: Gross premiums written grew 28.2% year over year to $1.2 billion, driven by increases in most lines of business, primarily due to new business opportunities, rate increases and growth in existing accounts. Underwriting loss came in at $28.2 million against the underwriting profit of $0.6 million year over year. Combined ratio deteriorated 400 bps to 103.9%.
Reinsurance: Gross premiums written rose 64.4% year over year to $1.1 billion, driven by increases in most lines of businesses, primarily due to growth in existing accounts, new businesses, including premiums written through Barbican acquired in fourth-quarter 2019, and rate increases.
Underwriting loss came in at $9.4 million against the underwriting profit of $20.9 million. Combined ratio deteriorated 680 bps year over year to 102%.
Mortgage: Gross premiums written increased 3.6% year over year to $368.9 million on the back of an increase in monthly premium business due to growth in insurance in force and lower ceded premiums. Underwriting income decreased 19% to $197.6 million. Combined ratio deteriorated 1850 bps year over year to 44.1%. Arch MI U.S. generated $16.8 billion of new insurance written compared with $11.2 billion in the year-ago quarter, driven by higher mortgage refinance activity.
Financial Update
Arch Capital exited the quarter with cash of $882.3 million, up 39.3% year over year. Debt was $1.8 billion, up 0.03% year over year. As of Mar 31, 2020, book value per share was $26.10, up 12.9% year over year.
Operating return on equity was 7.1% in the first quarter, down 520 basis points.
Net cash provided by operating activities was $585.9 million, up 254.2% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -101.88% due to these changes.
VGM Scores
Currently, Arch Capital has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Arch Capital has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.