Durable Goods (Jun F) -9.4% vs 9.3% Prior, Ex-Trans 0.2% vs 0.2%
On Wednesday, Keefe, Bruyette & Woods analysts reaffirmed their positive stance on Arch Capital (NASDAQ:ACGL) shares, maintaining an Outperform rating and a $113.00 price target. The endorsement comes after a thorough examination of the company’s year-end 2024 Generally Accepted Accounting Principles (GAAP) loss reserve triangles.
The analysts estimate that Arch Capital’s reserves at the end of 2024 were approximately $1.18 billion higher than necessary, compared to an overstatement of $1.03 billion at the end of 2023. This overstatement points to potential reserve releases for the insurer in the coming years, specifically in 2025 and 2026. The company’s strong financial position is reflected in its "GREAT" overall financial health score on InvestingPro, with particularly robust profitability metrics.
The detailed review of Arch Capital’s 2024 reserve development revealed significant releases in mortgage and property reinsurance reserves from accident years 2022 and 2023. Additionally, there were releases in specialty casualty reinsurance from accident year 2023. These releases were slightly balanced by an increase in reserves for casualty insurance and reinsurance stemming from several recent accident years.
Based on these findings, Keefe, Bruyette & Woods analysts have decided to maintain their earnings per share (EPS) estimates for Arch Capital for the years 2025 and 2026 at $7.55 and $9.40, respectively. These projections include anticipated net reserve releases of $360 million for 2025 and $372 million for the following year. The price target of $113.00 is set at 12.0 times the firm’s estimated 2026 EPS, reflecting a continued bullish outlook on the stock’s performance.
In other recent news, Arch Capital Group Ltd. reported fourth-quarter earnings that exceeded analyst expectations, with adjusted earnings per share reaching $2.26, surpassing the anticipated $1.84. The company’s revenue also outperformed estimates, coming in at $4.76 billion against the projected $4.03 billion. Gross premiums written increased by 11.9% year-over-year, while net premiums written rose by 17.1%. The company faced pre-tax catastrophe losses of $393 million due to Hurricanes Milton and Helene, which resulted in a combined ratio of 85.0%. Despite these challenges, Arch Capital’s strategic management and strong performance were highlighted by analysts.
Keefe, Bruyette & Woods adjusted Arch Capital’s price target to $113, attributing the change to anticipated increased catastrophe losses and other financial factors. RBC Capital Markets also revised the price target for Arch Capital, reducing it to $110 from $125, while maintaining an Outperform rating. JMP Securities, however, held the stock’s price target at $125, citing Arch Capital’s strong balance sheet and strategic cycle management as key strengths. Analysts from JMP Securities expressed confidence in Arch Capital’s ability to navigate the current property and casualty market effectively. These developments reflect a complex landscape for Arch Capital, with varying analyst opinions and significant financial results.
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