WR Berkley Corporation has been raising investor optimism on the back of its rate increases, high retention, solid cash position and effective capital deployment.
Growth Projections
The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $4.23 and $4.73, indicating year-over-year increase of 82.3% and 11.7%, respectively.
Earnings Surprise History
W.R. Berkley has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 16.51%.
Zacks Rank & Price Performance
W.R. Berkley currently sports a Zacks Rank #1 (Strong Buy). In the past year, the stock has rallied 23.2% compared with the industry’s increase of 28.3%.
Image Source: Zacks Investment Research
Return on Equity (ROE)
The company’s trailing 12-month return on equity (ROE) of 11.3% reflects its growth potential. It compares favorably with the industry average of 5.7%.
Moreover, in the second quarter, its ROE of 15% compared favorably with the prior-year quarter’s ROE of 4.7%. ROE reflects its efficiency in using its shareholders’ funds.
Business Tailwinds
Higher premiums at other liability, professional liability, short-tail lines, commercial auto and workers' compensation, rate increase, benefits derived from market dislocations, and high retention should drive the Insurance business of this property and casualty insurer.
Given higher income from investment funds due to market value adjustments and arbitrage trading income from investments and special purpose acquisition companies, investment income is expected to improve despite the current low interest rate environment.
Underwriting income should continue to benefit from the compounding rate improvement above loss cost trends along with growth in exposure and lower claims frequency in certain lines of business.
In the first half of 2021, its operating cash flow increased 20% year over year primarily due to increase in premium receipts, net of reinsurance and commissions settled. It exited the quarter with cash of $1.8 billion. Its investment portfolio is highly liquid, with approximately 79% invested in cash, cash equivalents and marketable fixed maturity securities as of Jun 30, 2021.
Expense ratio is likely to benefit from net premiums earned, outpacing compensation expense growth and lower travel and entertainment expenses due to the global pandemic.
Banking on solid balance sheet, it deploys capital effectively. In the first half of 2021, the company repurchased shares for $30 million. In June 2021, W.R. Berkley approved a 8% dividend hike that marked the 16th consecutive increase since 2005. It also approved a special dividend of 50 cents, marking the 12th straight year of special dividend. Its current dividend yield of 0.7% is better than the industry average of 0.3%, which makes the stock an attractive pick for yield-seeking investors.