A month has gone by since the last earnings report for RLI Corp. (RLI). Shares have added about 8.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is RLI Corp. due for a pullback? 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.
RLI Q4 Earnings and Revenues Beat Estimates, Premiums Up
RLI Corp.’s fourth-quarter 2018 operating earnings of 44 cents per share surpassed the Zacks Consensus Estimate by a whopping 566.7%. However, the bottom line plunged 66.9% from the prior-year quarter.
Higher level of catastrophe losses was responsible for this deterioration. Nonetheless, the company witnessed improved premiums across most of its product lines along with increase in net investment income in the reported quarter.
Full-Year Highlights
For 2018, RLI delivered operating earnings per share of $2.05, outpacing the Zacks Consensus Estimate by 19.2% but declining 10.9% year over year.
Total revenues of $853.5 million beat the consensus mark by 0.5% and also grew 7.6% year over year.
Operational Performance
Operating revenues for the reported quarter totaled $220.9 million, up 8.9% year over year. This upside can be attributed to higher net premiums earned and net investment income. Also, the top line beat the Zacks Consensus Estimate by 1.3%.
Gross premiums written improved 12.4% year over year to $257.4 million. This uptick can be attributed to a solid performance across Casualty, Property and Surety segments.
Total expenses increased 11.1% year over year to $205.2 million, primarily due to higher loss and settlement expenses, policy acquisition costs plus interest expense on debt.
Net investment income rose nearly 17.4% year over year to $16.9 million. Total return from the investment portfolio was (0.9%).
The company reported underwriting income of $2.2 million, which tumbled 75.6% from the year-ago period. This downside was due to weak results in the Property and Surety segments, partially offset by a stronger performance in the Casualty segment. Loss from Hurricane Michael lowered underwriting income by $19.6 million.
Combined ratio deteriorated 370 basis points year over year to 98.9%.
Financial Update
The company exited the fourth quarter with total investments and cash of $2.2 billion, up 2.5% from the tally as of 2017 end.
Book value was $18.13 per share as of Dec 31, 2018, down 6.2% from the count as of Dec 31, 2017.
Long-term debt was $149.1 million, which inched up 0.1% from the figure at the end of 2017.
Statutory surplus declined 4% to $829.8 million as of Dec 31, 2018 from the number as of Dec 31, 2017.
Net cash flow from operations improved 4.1% to $53.7 million in the quarter under review.
Dividend Payout
On Dec 27, 2018, the company paid out a cash dividend of 22 cents per share. On the same day, the insurer paid a special dividend of $1 per share that led to a tax benefit of 1 cent ($0.6 million).
Notably, the company has been consistently paying dividends for 170 consecutive quarters and has made dividend hikes in the last 43 straight years. In the last decade, the company has returned $1.2 billion to shareholders and the quarterly dividend has grown an average of 5.4% per year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, RLI Corp. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise RLI Corp. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
RLI Corp. (RLI): Free Stock Analysis Report
Original post