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Argo Group (ARGO) Gains 46% in a Year: More Room for Upside?

Highly profitable business, growth initiatives, an expense initiative program, digitalization and a solid capital position continue to drive Argo Grou...

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This story originally appeared on Zacks

Shares of Argo Group International Holdings ARGO have gained 46.1% in a year compared with the industry’s and the Finance sector’s growth of 21.5% and 42.1%, respectively. The Zacks S&P 500 composite has increased 38.1% in the said time frame. With a market capitalization of $1.18 billion, the average volume of Argo Group’s shares traded in the last three months was 0.1 million.

 

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Highly profitable business, growth initiatives, an expense initiative program, digitalization and a solid capital position continue to drive Argo Group. It has a decent track record of beating earnings estimates, having done so in three of the last four quarters, missing in one, delivering an earnings surprise of 600.15%, on average.



The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 12.3% and 5.3% respectively, in the past 30 days, reflecting analysts’ optimism.

Will the Bullish Run Continue?

The Zacks Consensus Estimate for 2021 earnings indicates a year-over-year improvement of 600% on 6.8% higher revenues. The consensus estimate for 2022 indicates a year-over-year improvement of 35.9% on 4.3% higher revenues.



Argo Group’s business units, Argo Pro, Casualty, Construction, Environmental, Inland Marine and Surety, in a combined manner represent two-thirds of the U.S. premium base. These highly profitable businesses are positioned for growth in attractive markets.



The company estimates gross written premium to grow 6-9% and combined ratio between 95-97.



Argo Group, in its efforts to improve underwriting profitability, is taking steps like terminating portions of an existing book of business, re-pricing portions of another existing book of business and eliminating certain distribution partners who not meeting profitability or volume requirements, among others. It remains focused to invest where it sees immense potential. The company expects rate increases in the mid-single digits.



This Zacks Rank #1 (Strong Buy) U.S.-focused specialty insurer targets double-digit premium growth and low-90 combined ratio by 2022.



Improved rate, combined with focus on areas with a track record of profitability, should continue to drive Argo Group’s International operations.



The company is undergoing an expense initiative program. Growth initiatives, operating expense reductions and reinvestment costs are aiding in lowering costs. It estimates 36% expense ratio in 2022.



Argo Group has been investing in technology to improve operating efficiency and risk selection, while reducing overall expenses.



Argo Group expects to generate operating return on common equity between 6.5-8.5% in 2021 and 10%+ ROCE by 2022.



It boasts of a solid balance sheet with modest financial leverage.

Other Stocks to Consider

Some other top-ranked stocks in the same space include American Financial Group AFG, Cincinnati Financial Corporation CINF and Everest Re Group RE, all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

        

American Financial Group delivered an earnings surprise of 45.73% in the last reported quarter.



Cincinnati Financial delivered an earnings surprise of 80.81% in the last reported quarter.



Everest Re Group delivered an earnings surprise of 62.56% in the last reported quarter.



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