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Primerica (PRI) Up 36% YTD: Can it Retain the Bull Run?

Primerica Inc.’s PRI shares have gained 35.5% year to date, outperforming the industry’s increase of 6.8%. The Finance sector and the Zacks S&P 500 composite have risen 2.1% and 12.2%, respectively, in the same period. With a market capitalization of $7 billion, the average volume of shares traded in the last three months was 0.1 million.

Compelling portfolio, strong market presence position and solid capital continue to drive this Zacks Rank #3 (Hold) insurer’s performance. Earnings of this second-largest issuer of term-life insurance coverage in North America have increased 14.4% over the last five years, outperforming the industry average of 2.6%. PRI delivered four-quarter average earnings surprise of 3.81%.

Return on equity (ROE), a profitability measure to identify how efficiently a company is utilizing its shareholders’ funds, has been improving over the last several years. PRI’s trailing 12-month ROE of 24.9% is better than the industry average of 11.6%.

The company has a VGM Score of A. The Style Score rates stocks on the combined weighted styles, helping to identify those with the most attractive value, best growth and most promising momentum.

The Zacks Consensus Estimate for 2023 and 2024 earnings has moved 0.5% and 0.2% north, respectively, in the past seven days, reflecting analyst optimism.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Can PRI Retain the Momentum?

The Zacks Consensus Estimate for 2023 earnings is pegged at $15.33 per share, suggesting a year-over-year increase of 34% on 4.5% higher revenues of $2.9 billion. The consensus estimate for 2024 earnings is pegged at $17.09, indicating a year-over-year increase of 11.5% on 5.3% higher revenues of $3 billion. The company has a Growth Score of B. The Style Score analyzes the growth prospects of a company.

Primerica stands to benefit from solid demand for protection products that drive sales growth and policy persistency. A strong business model makes it well-poised to cater to the middle market's increased demand for financial security. Thus, Primerica envisions to be a successful senior health business while continuing to enhance its shareholders’ value.

The insurer stays focused on increasing the size of the life license sales force through continued recruiting and licensing. PRI estimates a 3% rise in sales force size in 2023. Licensed representatives play a major role in driving operational results of this insurer.

Primerica’s strategy of introducing more rate classes to better match risk and price and allowing customers to potentially purchase more insurance coverage is bearing fruit as evidenced by a 2% increase in new life insurance policies in the first quarter of 2023. PRI estimates Term Life issued policy to grow in mid-single digit in 2023.

Given market conditions, the company estimates second-quarter Investment & Savings Products segment sales to decline between 7% and 10% year over year.

Adjusted direct premiums are expected to increase 6% in 2023.

Life insurers are direct beneficiaries of an improving interest rate environment. The Fed has already made three hikes in 2023, taking the tally to 10 since March 2022. PRI estimates net investment income to be around $32 million per quarter for the remainder of 2023.

While the insurer has solid liquidity, Primerica has been strengthening its balance sheet by improving its leverage ratio. PRI scores strongly with credit rating agencies.

Primerica has a solid dividend history, banking on the operational excellence of Term Life and ISP businesses. It has hiked dividends every year since 2010, increasing at a 13-year CAGR of 37.9%. The insurer also engages in share buyback. It expects the Term Life business to be the primary source of deployable capital and remains confident to buyback targeted $375 million worth shares in 2023.

However, PRI expects second-quarter insurance and other operating expenses to increase in the range of 2-3% year over year, driven by continued growth in the business, technology spend and employee-related costs. Nonetheless, the insurer believes to benefit from $5 million of lower costs associated with sales force leadership events due to the convention in the prior year. It also expects insurance and other operating expenses to grow 4-5% in 2023.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Reinsurance Group of America RGA, RLI Corporation RLI and Kinsale Capital Group KNSL, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Reinsurance Group’s 2023 and 2024 earnings indicates a year-over-year increase of 23.3% and 1.7%, respectively. RGA delivered a four-quarter average earnings surprise of 56.92%.

The consensus estimate for 2023 and 2024 earnings has moved up 0.3% and 0.6%, respectively, in the past seven days. Shares of RGA have gained 3.1% year to date.

RLI delivered a four-quarter average earnings surprise of 43.50%. Year to date, the insurer has gained %.

The Zacks Consensus Estimate for RLI’s 2023 earnings indicates a year-over-year increase of 4.1%.

Kinsale Capital delivered a four-quarter average earnings surprise of 14.77%. Year to date, the insurer has gained 36.1%.

The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings indicates a year-over-year increase of 32.9% and 19.7%, respectively.

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