SIGI Stock Rises 5.2% in 6 Months but Lags Industry: What's Next?

Zacks
16 Dec 2024

Shares of Selective Insurance Group, Inc. SIGI have gained 5.2% in six months, underperforming the industry, the Finance sector and the S&P 500 composite’s return of 12.3%, 8.8% and 10.8%, respectively.


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With a market capitalization of $5.88 billion, the average volume of shares traded in the last three months was 0.3 million.

Selective Insurance has been grappling with higher expenses over the years, primarily due to increasing loss and loss expenses incurred and amortization of deferred policy acquisition costs.

Being a property and casualty (P&C) insurer, Selective Insurance remains exposed to catastrophe loss stemming from natural disasters and weather-related events. Such a massive loss poses an inherent risk to the P&C insurance business, inducing volatility in its results. SIGI estimates a GAAP combined ratio of 101.5%, up from the prior guidance of 96.5%.

Closing at $96.73 in the last trading session, the stock stands 11.7% below its 52-week high of $109.58.





SIGI Trading Above 50-Day and 200-Day Moving Average

The stock is trading above the 50-day and 200-day simple moving averages (SMA) of $96.36 and $95.65, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Mixed Analyst Sentiment on SIGI

Over the past 30 days, two of the five analysts covering the stock have lowered estimates for 2024, while one has raised the same for 2025.

The consensus estimate for 2024 has moved 0.5% south, while the consensus estimate for 2025 has moved 1% north in the past 30 days.

Factors Favoring SIGI Stock

Exposure growth, solid retention rates and higher new business gains in standard commercial and excess and surplus (E&S) lines should drive premium growth.

Steady betterment of premiums, improved net investment income and higher other income have resulted in top-line improvement. Over the past seven years (2017-2023), total revenues witnessed a CAGR of 8%.

The E&S Lines segment of Selective Insurance is likely to improve because of renewal pure price increases, higher direct new business and favorable E&S lines marketplace conditions.

Given impressive investment results, Selective Insurance estimates an after-tax net investment income of $360 million that includes $32 million from alternative investments for 2024. Higher income earned on fixed-income securities portfolio due to improved book yields received from the investment of operating and investing cash flows over the past year in the higher interest rate environment is likely to drive the metric.





Impressive Dividend History of Selective Insurance

Riding on a solid capital position, Selective Insurance has been hiking dividends, which registered a nine-year CAGR (2015-2023) of nearly 8.8%. It had $75.5 million remaining under authorization as of Sept. 30, 2024. Riding on strong financial and operating performance, the board has approved a 9% hike in the quarterly cash dividend in the third quarter of 2024. Such steadfast endeavors buoy confidence among investors, making it an attractive pick for yield-seeking investors. Its dividend yield of 1.5% appears attractive compared with the industry average of 0.2%.

SIGI’s Favorable Return on Capital

Return on equity in the trailing 12 months was 8.1%, better than the industry average of 7.5%. This highlights the company’s efficiency in utilizing shareholders’ funds.

SIGI’s Expensive Valuation

The stock is overvalued compared with its industry. It currently has a trailing 12-month P/B ratio of 1.98, higher than the industry average of 1.55.

Shares of other property and casualty insurers, such as Palomar Holdings, Inc. PLMR and Cincinnati Financial Corporation CINF, are also trading at a multiple higher than the industry average, while NMI Holdings Inc NMIH is trading at a discount.

Wrapping Up: Keep on Holding

While Selective Insurance remains well-poised to gain from strong renewal, fuel price increases, favorable E&S lines marketplace conditions and higher income earned on fixed-income securities portfolio, the specific challenges facing the company like exposure to catastrophe loss and escalating expenses cannot be ignored.

Despite its expensive valuation, SIGI should benefit from favorable growth estimates, higher return on capital and prudent capital deployment. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

Selective Insurance Group, Inc. (SIGI) : Free Stock Analysis Report

NMI Holdings Inc (NMIH) : Free Stock Analysis Report

Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report

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Zacks Investment Research

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