On Wednesday, Oppenheimer initiated coverage on RLI Corp . (NYSE:RLI) shares with a Perform rating. The firm's analysis acknowledges RLI Corp.'s strong track record of disciplined execution and margin outperformance. However, it also points to a less enthusiastic industry outlook, diminishing pricing and growth opportunities, along with more complex reserve dynamics as factors in the rating decision.
The company's shares are seen as fairly valued within the $150 to $175 range, which translates to a multiple of 25.5 to 29.8 times Oppenheimer's projected 2025 operating earnings per share (EPS). This valuation is compared to RLI's current multiple of 26.8 times and a 10-year historical average of 29.0 times.
Oppenheimer's EPS estimates for RLI Corp. for the years 2025 and 2026 are approximately 5% below the consensus. This conservative estimate is attributed to anticipated lower overall margins and a slower growth trajectory in the Property sector, which is a key area of RLI Corp.'s business operations.
The Perform rating suggests that Oppenheimer's outlook on RLI Corp. is neutral, indicating that the stock is expected to perform in line with the broader market or sector averages. The firm's position reflects a balanced view of the company's historical performance against the current industry challenges it faces.
In other recent news, RLI Corp. reported strong financial performance with an 11% growth in premiums and a combined ratio of 81.5, indicating robust underwriting profitability. The company experienced significant growth in its Property, Surety, and Casualty segments, with the Property segment growing by 6% due to initiatives in Marine and Hawaii Homeowners, and the Surety segment increasing by 17% driven by Contract Surety and renewable energy.
RLI Corp. also announced estimated pretax net catastrophe losses of $35 to $40 million due to Hurricanes Beryl and Helene, expected to impact the third-quarter financial results of 2024.
In the analysis of Wolfe Research and RBC Capital, RLI Corp. was highlighted for its sustainable outperformance and growth potential. Wolfe Research initiated coverage on RLI Corp. with an Outperform rating, emphasizing the company's exceptional underwriting and conservative approach as key drivers of sustained outperformance. RBC Capital maintained its Sector Perform rating on RLI Corp, noting the company's strong results and commendable underwriting.
The firms also noted RLI Corp.'s strategic moves, such as expanding into market niches like moving and storage to counter competition in traditional trucking. They recognized RLI Corp.'s disciplined underwriting and diversified portfolio as key factors in its consistent financial outcomes. These recent developments indicate RLI Corp.'s potential for continued growth and profitability.
InvestingPro Insights
RLI Corp.'s financial health and market position offer additional context to Oppenheimer's neutral stance. According to InvestingPro data, RLI boasts a market capitalization of $7.33 billion and a P/E ratio of 21.77, which aligns closely with Oppenheimer's valuation range. The company's revenue for the last twelve months as of Q2 2024 stands at $1.63 billion, with a notable operating income margin of 25.68%.
InvestingPro Tips highlight RLI's strong dividend history, having maintained payments for 49 consecutive years. This consistency underscores the company's financial stability, which may provide some reassurance against the industry headwinds noted by Oppenheimer. Additionally, RLI is trading near its 52-week high, with a price at 98.48% of its peak, suggesting investor confidence despite the challenges ahead.
The company's high return over the last decade and strong five-year performance, as pointed out by InvestingPro Tips, lend credence to Oppenheimer's acknowledgment of RLI's disciplined execution. However, the high Price/Book multiple of 4.63 could indicate that the stock is relatively expensive, potentially supporting Oppenheimer's view on fair valuation.
For investors seeking a deeper understanding of RLI's prospects, InvestingPro offers 5 additional tips that could provide valuable insights into the company's future performance and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.