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Palomar (PLMR) Poised to Gain From Solid Top-Line Growth

Palomar (PLMR) is poised to grow, given its strong premium retention rates, higher average balance of investments and effective capital deployment.

This story originally appeared on Zacks

Palomar Holdings, Inc. PLMR should continue to benefit from new business generation, geographic expansion, and product diversification.

- Zacks

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $2.42 and $3.12, indicating a year-over-year increase of 591.4% and 28.5%, respectively.

Estimate Revision

Estimates for 2021 and 2022 have moved up nearly 0.4% and 1.6%, respectively, in the past 30 days. This should instill investors' confidence in the stock.

Earnings Surprise History

Palomar has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 8.10%.

Zacks Rank & Price Performance

Palomar currently carries a Zacks Rank #2 (Buy). However, the stock has rallied 1.7% compared with the industry’s increase of 19.7% in the year-to-date period.

Zacks Investment Research

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Business Tailwinds

Palomar Holdings’ revenue growth is likely to gain from new business generation at existing partners, strong premium retention rates for existing business, expansion of products’ geographic and distribution footprint, and new partnerships. Revenues increased at a two-year (2018-2020) CAGR of 51.9%.

The Zacks Consensus Estimate for the company’s 2021 and 2022 revenues is pegged at $246.6 million and $349.6 million, respectively, indicating a year-over-year increase of nearly 49.2% and 41.7%.

A higher average balance of investments, as well as higher yields on invested assets, are likely to drive net investment income.

For 2021, Palomar Holdings estimates adjusted net income in the range of $64 million to $69 million.

Moreover, Palomar continues to broaden its product suite and partnerships. Per the strategic initiatives, it launched several new products and partnerships via PESIC and continues to harvest existing products and partnerships. These efforts are likely to increase new and existing lines of business, help the company to capitalize on conducive market conditions and dislocations as well as diversify its overall portfolio.

Also, it remains focused on existing and new partner relationships and continues to increase distribution and geographic presence, and diversify products.  Its newest partnership with PURE Programs allowed it to enter into the high-value residential builders risk segment and complemented its commercial builders risk product offering.

Backed by a sustained operational performance, Palomar has maintained a solid capital position. Its cash and cash equivalents witnessed a two-year CAGR (2017-2020) of 45.9%. In addition, it continued to maintain a cash and cash equivalent position of $24.9 million. This suggests that the company has sufficient cash reserves to ensure financial stability. The company also boasts a debt-free balance sheet.

In March 2021, its board authorized a share buyback program to return more value to investors. The latest authorization will enable it to spend up to $40 million to repurchase its common stock through Mar 31, 2023.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include American Financial Group, Inc. AFG, Everest Re Group, Ltd. RE, and W.R. Berkley Corporation WRB, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of American Financial surpassed estimates in each of the last four quarters, the average being 52.82%.

Everest Re surpassed estimates in two of the last four quarters and missed in the other two, the average earnings surprise being 20.33%.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average being 16.51%.

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