Arch Capital stock price target raised, rating held by Keefe, Bruyette & Woods

On Tuesday, Keefe, Bruyette & Woods, a financial services company, adjusted its stock price target for Arch Capital Group Ltd (NASDAQ:), a global insurer, to $121.00, a slight increase from the previous target of $120.00. The firm continues to recommend an Outperform rating for the stock.

The revision follows Arch Capital’s second quarter 2024 earnings report, which exceeded the analyst’s expectations. The firm has revised its earnings per share (EPS) estimates for the company, increasing the 2024 and 2025 EPS projections to $8.55 and $9.30, respectively, up from the prior estimates of $8.20 and $9.25. Moreover, Keefe, Bruyette & Woods has introduced an EPS estimate of $10.25 for the year 2026.

The updated EPS forecasts incorporate the company’s strong performance in the second quarter of 2024, with anticipated faster growth in premium and investment income and reduced expenses for 2024. However, these positive adjustments are partially balanced by expectations of lower reserve releases and a higher core loss ratio for 2025.

Keefe, Bruyette & Woods anticipates that Arch Capital’s cycle management strategy will continue to drive robust and profitable premium growth over the next 12 months. The firm expects this momentum to persist in a favorable property and casualty (P&C) earnings environment. The new price target of $121 is based on 13 times the firm’s estimated 2025 EPS for Arch Capital.

In other recent news, Arch Capital Group Ltd. reported significant Q2 2024 results, including an underwriting income of $762 million and a 20.5% annualized operating return on equity. The company’s Mortgage segment saw a 12% increase in new insurance written, yielding $287 million in underwriting income, and the investment portfolio expanded to $37.8 billion, generating $364 million in net investment income.

Arch Capital also completed the strategic acquisition of the U.S. MidCorp and Entertainment insurance businesses from Allianz (ETR:), aiming to enhance the company’s services in the middle market segment.

Jefferies has adjusted its price target for Arch Capital from $117 to $114, maintaining a Buy rating. This decision followed a review of the company’s expected earnings per share for the years 2024 to 2026.

Meanwhile, RBC Capital increased its price target for Arch Capital from $108 to $112, maintaining an Outperform rating. Both adjustments were made in light of Arch Capital’s strong underwriting results and successful implementation of rate increases.

These recent developments underscore Arch Capital’s strategic maneuvers and solid financial results, leading to a positive outlook from industry observers such as Jefferies and RBC Capital.

InvestingPro Insights

Following the upbeat analysis by Keefe, Bruyette & Woods, data from InvestingPro further underlines the financial health and market position of Arch Capital Group Ltd (NASDAQ:ACGL). With a market capitalization of $35.97 billion and a notably low price-to-earnings (P/E) ratio of 6.61, the company stands out as a potentially undervalued player in the insurance industry. The adjusted P/E ratio for the last twelve months as of Q2 2024 remains consistent at 6.62, suggesting stable valuation metrics.

InvestingPro Tips highlight that Arch Capital is trading at a low earnings multiple, which could interest value investors looking for stocks with earnings potential that may not be fully reflected in their share price. Moreover, the company’s significant revenue growth of 31.26% in the last twelve months as of Q2 2024 signals robust business expansion. Analysts have also revised their earnings upwards for the upcoming period, indicating confidence in the company’s financial prospects.

The InvestingPro product offers additional insights, including a total of 9 InvestingPro Tips for Arch Capital, which can help investors make more informed decisions. While Arch Capital does not pay dividends, its strong return over the last five years and a high return over the last decade may appeal to growth-focused investors.

For those considering an investment in Arch Capital, the next earnings date is set for October 30, 2024, which will provide further clarity on the company’s trajectory. With an InvestingPro Fair Value estimate of $92.76, compared to the analyst target of $114.00, investors have valuable data points to consider when evaluating the company’s stock.

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