Arch Capital (ACGL) Down 3.3% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Arch Capital Group Ltd. ACGL. Shares have lost about 3.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ACGL 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.

Arch Capital Q1 Earnings Beat Estimates, Improve Y/Y

Arch Capital Group Ltd. (ACGL) reported first-quarter 2018 operating income per share of $1.69, which outperformed the Zacks Consensus Estimate by 7.6%. Moreover, the bottom line improved 19% from the prior-year quarter.

The first quarter benefited from a sturdy performance at the Insurance and Reinsurance segments. Higher net investment income as well as favorable underwriting results added to this upside.

Including net realized loss of 80 cents, equity in net income loss of investment funds accounting for using the equity method of 20 cents, net foreign exchange loss of 11 cents, UGC transaction costs of 1 cent, loss on redemption of preferred shares of 2 cents and an income tax benefit of 4 cents, net income came in at 99 cents per share, down 43.1% year over year.

Behind the Headlines

Gross premiums written increased 10.9% year over year to $1.8 billion, largely fueled by higher premiums written in the Insurance and Reinsurance segments.

Net investment income grew 4.6% to $100.2 million, supported by higher level of investable assets.

Arch Capital’s underwriting income was $236.9 million, having improved 11.8% from the year-ago quarter. Combined ratio improved slightly by 10 basis points (bps) to 81.3%.

Segment Results

Insurance: Gross premiums written increased 5.3% year over year to $823.4 million.

Underwriting income of $7.9 million declined 21.4% from the year-ago quarter. Combined ratio deteriorated 60 bps to 98.6%.

Reinsurance: Gross premiums written in the quarter under review improved 21.4% year over year to $577.5 million.

Underwriting income of $54.8 million slipped 1% from the prior-year quarter. Combined ratio deteriorated 350 bps year over year to 80.7%.

Mortgage: Gross premiums written in the quarter fell 7.9% year over year to $321.2 million, primarily reflecting a lower level of Australian mortgage reinsurance business as well as that of U.S. single premium business. Underwriting income rose 17.4% to $174.9 million. Combined ratio improved 200 bps year over year to 38.8%.

Financial Update

Arch Capital exited the first quarter with total capital of $11.26 billion compared with $10.84 billion as of Mar 31, 2017.

As of Mar 31, 2018, book value per share was $61.24, up 6.2% year over year.

Operating return on equity was 11.3% in the reported quarter compared with 10.3% in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.

Arch Capital Group Ltd. Price and Consensus

 

Arch Capital Group Ltd. Price and Consensus | Arch Capital Group Ltd. Quote

VGM Scores

At this time, ACGL has an average Growth Score of C, however its Momentum is doing a lot better with an A. The stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.

Outlook

ACGL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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