On Tuesday, CFRA adjusted its stance on Arch Capital Group Ltd. (NASDAQ:ACGL), downgrading the stock from a Strong Buy to a Buy rating, while simultaneously increasing the stock price target to $107 from $105.
The firm's new price target reflects a valuation of Arch Capital's shares at 11.8 times CFRA's 2025 operating earnings per share (EPS) estimate of $9.10 and 12.2 times the 2024 EPS estimate, which was revised upward today by $0.11 to $8.76.
The revision comes after Arch Capital reported first-quarter operating earnings per share of $2.45, surpassing both CFRA's estimate of $2.26 and the consensus estimate of $2.09. This performance was attributed to a 19% increase in earned premiums and a significant 24% rise in the first quarter's written premiums. During the earnings call this morning, management highlighted the company's proactive approach in navigating the current hard market conditions.
Moreover, Arch Capital demonstrated improved underwriting results, with the first quarter combined ratio improving to 78.8% compared to 80.6% previously. This improvement occurred despite the company having some exposure to the Baltimore bridge collapse, an event that CFRA does not consider to be material to the company's financial outlook.
CFRA anticipates that Arch Capital's pricing and demand will continue to be robust, projecting operating revenue growth of over 20% in 2024, followed by a 15-20% increase in 2025. The firm regards Arch Capital as one of the best-managed companies within the insurance and reinsurance sectors.
Despite the downgrade, CFRA maintains a very positive view on the shares, which have already experienced a significant gain of more than 25% since the beginning of the year.
InvestingPro Insights
Following CFRA's recent analysis of Arch Capital Group Ltd. (NASDAQ:ACGL), InvestingPro data provides additional context to the insurer's financial health and market position. Arch Capital's market capitalization stands at a robust $34.96 billion, reflecting its significant presence in the industry.
The company's P/E ratio, both current and adjusted for the last twelve months as of Q1 2024, hovers around a low 7.19 and 7.27, respectively, suggesting that the stock is trading at a low earnings multiple compared to historical earnings.
InvestingPro Tips also highlight that Arch Capital is a prominent player in the Insurance industry with a strong track record, having been profitable over the last twelve months. It is worth noting that Arch Capital does not pay a dividend, which may be a consideration for income-focused investors. Moreover, while net income is expected to drop this year, analysts predict the company will remain profitable, and seven analysts have revised their earnings upwards for the upcoming period.
For those considering an investment in Arch Capital, it may be opportune to know that the company is trading near its 52-week high, with a price 98.43% of that peak. With a fair value according to analysts at $109 and InvestingPro's fair value estimation at $89.29, potential investors have a range of perspectives to consider.
For further insights and additional InvestingPro Tips on Arch Capital, visit https://www.investing.com/pro/ACGL and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are six more tips available on InvestingPro that could guide your investment decisions.
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