On Tuesday, Evercore ISI adjusted its outlook on W.R. Berkley Corporation (NYSE:WRB), a property and casualty insurance provider, by reducing the stock's price target to $85 from the previous $89 while maintaining an "In Line" rating. The firm noted that W.R. Berkley's first-quarter performance for 2024 was mixed, as the company surpassed a reduced expectation but experienced some setbacks.
W.R. Berkley managed to beat the lowered projections for the quarter, yet the insurance underwriting loss ratio (ULR) did not meet expectations. The company reported $8 million in adverse prior year development (PYD) within its insurance segment. Despite this, rate increases remained stable, assisted by a favorable mix of less professional lines renewing in the first quarter compared to the fourth quarter.
The firm stated that W.R. Berkley is not inclined to reduce its liability picks, which explains the increased prudence incorporated into the actuarial year 2024 (AY24) estimates. This caution is understandable given the significant reserve releases W.R. Berkley has recognized for actuarial years 2020 to 2022.
The $8 million adverse PYD is believed to be a result of adjustments to actuarial year 2019, counterbalanced by reserve releases from actuarial years 2020 to 2023, a pattern that has been observed over the past two years.
Evercore ISI has revised its earnings per share (EPS) estimate for W.R. Berkley downward by 1% to account for a higher anticipated tax rate and a slightly worse ULR in the insurance segment. This adjustment is partially offset by better-than-expected net premium written (NPW) growth. The new price target of $85 reflects these revised estimates.
Despite the challenges, W.R. Berkley demonstrated a strong return on equity (ROE) of 23% in the first quarter and approximately 20% when factoring in a normal natural catastrophe load. The company appears to be striving to balance improvements in the current year with the maintenance of balance sheet strength.
Still, the firm suggests that this balance could diminish the impact of the 10-15% NPW growth on EPS growth.
InvestingPro Insights
W.R. Berkley Corporation (NYSE:WRB) has been a topic of discussion after Evercore ISI's recent adjustments. To add to the conversation, InvestingPro offers some insights that could be valuable for investors considering WRB's stock.
According to the latest data, W.R. Berkley holds a market capitalization of $20.22 billion and is trading at a P/E ratio of 15.63, which is slightly lower than the adjusted P/E ratio for the last twelve months as of Q4 2023, standing at 14.82. This may suggest a reasonable valuation in light of the company's earnings.
One of the InvestingPro Tips highlights that analysts have revised their earnings downwards for the upcoming period, which aligns with Evercore ISI's recent EPS estimate revision. Additionally, despite the near-term earnings growth, WRB is trading at a high P/E ratio, which investors should be mindful of when assessing the stock's growth prospects.
On a positive note, W.R. Berkley has maintained dividend payments for 50 consecutive years, and with a dividend yield of 1.73% as of the latest data, it could be appealing to income-focused investors.
InvestingPro also notes that W.R. Berkley has been profitable over the last twelve months, which is corroborated by a solid gross profit margin of 43.2%. Furthermore, the company has experienced a significant price uptick over the last six months, with a total return of 33.98%.
For those interested in more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/WRB, which could further guide investment decisions. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
It's worth mentioning that there are 8 more InvestingPro Tips available for W.R. Berkley, which could provide investors with a more comprehensive understanding of the company's financial health and market position.
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