Skyward Specialty Insurance Group, Inc. SKWD is expected to witness an improvement in its top and bottom lines when it reports third-quarter 2024 results on Oct. 29, after the closing bell.

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The Zacks Consensus Estimate for SKWD’s third-quarter revenues is pegged at $292.4 million, indicating 22.2% growth from the year-ago reported figure.

The consensus estimate for earnings is pegged at 64 cents per share. The Zacks Consensus Estimate for SKWD’s third-quarter earnings has moved up 2 cents in the past 30 days. The estimate suggests a year-over-year decline of 1.5%.

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SKWD’s Solid Earnings Surprise History

SKWD’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 32.37%. This is depicted in the following chart.

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What the Zacks Model Unveils for Skyward Specialty 

Our proven model predicts an earnings beat for Skyward Specialty this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. 

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: SKWD has an Earnings ESP of +14.96%. This is because the Most Accurate Estimate of 73 is pegged higher than the Zacks Consensus Estimate of 64 cents.

Zacks Rank: SKWD currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Shape SKWD’s Q3 Results

Gross written premiums are likely to have improved owing to better performance at Captives, Transactional E&S and Surety divisions as well as Global Agriculture business.

Investment income is likely to have benefited from de-risking of the portfolio, improvement in portfolio yield and an increase in the invested asset base. The Zacks Consensus Estimate is pegged at $19 million, indicating an increase of 36.7% from the year-ago reported number. 

Expenses are likely to have increased owing to a rise in losses and loss adjustment expenses and underwriting, acquisition and insurance expenses.

The expense ratio is likely to have increased owing to a business mix shift and continuous investment in the business. The Zacks Consensus Estimate is pegged at 29.5. 

Underwriting income is likely to have benefited from better pricing, increased exposure and prudent underwriting standards. The combined ratio is pegged at 93.

SKWD’s Price Outperformance & Premium Valuation

The stock has outperformed the industry, sector and the Zacks S&P 500 composite index in the past three months. 
 

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The stock is trading at a price-to-book value of 2.57X, higher than the industry’s 1.64X. It is attractively valued compared with The Allstate Corporation ALL but expensive when compared with The Travelers Companies TRV. 

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Investment Thesis

Skyward Specialty’s growth strategy focuses on underpenetrated niche markets for which standard insurance coverages are insufficient or inadequate. Its tailor-made products and services, coupled with prudent underwriting, make this insurer well-poised to capitalize on the market opportunity, thus driving the top line and margins. The insurer has been able to shape a portfolio that offers the best risk-adjusted returns on capital, ensuring low underwriting volatility and a competitive moat.

Skyward Specialty’s focus on high-return areas that are less exposed to the P&C cycles, prudent pricing, better retention and the shift of the business mix toward more profitable lines bode well for growth. Combined ratio, measuring an insurer’s underwriting profitability, has been consistently improving. 

The company’s intelligent investment strategy has been paying off well. Its improving debt profile renders financial flexibility. This, coupled with improved cash balance, strengthens its balance sheet.

What Should Investors Do Now With SKWD Stock?

SKWD’s eight underwriting divisions are individually producing more than $100 million in gross written premiums. Its “Rule Our Niche” to accelerate growth, expanding margins, strong earnings potential, increasing return on capital and favorable leverage bode well for growth.  

Despite its expensive valuation, given the positive analyst sentiment, growth prospects and Value Score of B, SKWD remains a strong contender for addition to one’s portfolio.

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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report

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