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AXIS Capital Holdings AXS shares are trading at a discount to the Zacks Property and Casualty Insurance industry’s multiple of 1.65. Its price-to-book value of 1.36X is lower than the broader sector’s 3.74X and the Zacks S&P 500 composite’s 8.83X.
Its pricing at a discount to the industry average gives a better entry point to investors. Also, it has a Value Score of A.
This leading specialty insurer and global reinsurer has a market capitalization of $7 billion. The average volume of shares traded in the last three months was 0.5 million.
Image Source: Zacks Investment Research
Shares of other insurers like EverestGroup EG and RenaissanceRe Holdings Ltd RNR are also trading at a multiple lower than the industry average.
Shares of the company have gained 49.5% year to date, outperforming the industry’s increase of 30.6%, the Finance sector’s rise of 19.1% and the Zacks S&P 500 composite’s increase of 22.4% in the said time frame.
AXS vs Industry, Sector & S&P 500 YTD
Image Source: Zacks Investment Research
AXS Trading Above 50-Day Moving Average
AXS shares are trading well above the 50-day moving average, indicating a bullish trend. Shares are trading near the high end of its 52-week range.
AXS Price Movement vs. 50-Day Moving Average
Image Source: Zacks Investment Research
Mixed Analysts’ Sentiment on AXS
Two of the four analysts covering the stock raised their estimates for the current year while one lowered it in the past 30 days. For the next year, one of the four analysts covering the stock raised estimates, while two lowered it in the past 30 days.
Thus, the Zacks Consensus Estimate for Axis Capital’s 2024 earnings moved 0.2% north, while the same for 2025 moved 5.1% south in the past 30 days.
The Zacks Consensus Estimate for 2024 earnings per share (EPS) is pegged at $10.73, indicating an increase of 8.9%, while that for 2025 is pegged at $11.58, indicating an increase of 7.9%. The expected long-term earnings growth rate is pegged at 27.6%, better than the industry average of 11.5%.
Factors Acting in Favor of AXS
AXIS Capital’s growth strategy encompasses a focus on growth areas, including wholesale insurance and lower middle markets, concentrating on accident and health, excess and supply property, casualty, credit and surety, and specialty reinsurance lines. The insurer’s exit from the volatile catastrophe and property reinsurance space lowered risk exposure and prevented profit erosion.
The Insurance segment is poised to benefit from a diversified portfolio of global specialty businesses, leadership positions and growth opportunities across major business lines. The Reinsurance business should benefit from strong cycle management, focusing on improving the business mix.
AXIS Capital’s intention to expand digital capabilities to create new business growth in desirable smaller accounts bodes well for growth. This, coupled with a simplified operating structure, efficiencies and productivity gains, should help it achieve a general and administrative ratio of less than 11% by 2026.
Strategic initiatives have been driving improvement in its operating earnings over the past few years. Earnings grew 82.7% in the last five years, outperforming the industry average of 11.5%.
AXS’ Return on Capital
AXS’ trailing 12-month return on equity is 19.7%, ahead of the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Image Source: Zacks Investment Research
Also, the return on invested capital (ROIC) in the trailing 12 months was 11.7%, better than the industry average of 6.1%. Its ROIC has been increasing over the last few quarters amid capital investment made over the same time frame. This reflects the company’s efficiency in utilizing funds to generate income.
Image Source: Zacks Investment Research
Average Target Price for AXS Suggests a Solid Upside
Based on short-term price targets offered by seven analysts, the Zacks average price target is at $93.86 per share. The average suggests a potential 13.4% upside from Thursday’s closing price.
Risks to AXS
Though AXIS Capital’s debt has been decreasing over the last few years, with its debt-to-capital ratio improving, it compares unfavorably with the industry average. Also, its times interest earned, measuring the company’s debt servicing capabilities, compares unfavorably with the industry.
AXIS Capital competes on an international and regional basis, and also with new companies that enter the insurance markets. Also, there has been a large amount of merger and acquisition activity in the insurance/reinsurance sector in recent years, which may increase competition. Such increased competition could result in fewer submissions, lower premium rates, less favorable policy terms and conditions and greater costs of customer acquisition and retention.
What Should Investors Do?
This leading specialty insurer and global reinsurer, which aims to lead in specialty risks, has been repositioning its portfolio and strengthening its book of businesses. Focusing on deploying resources prudently while enhancing efficiencies, improving its portfolio mix and improving underwriting profitability positions Axis Capital for growth. It has a VGM Score of A.
Its dividend history is impressive, given that it has one of the highest dividend yields among its peers, making it an attractive pick for yield-seeking investors.
However, mixed analyst sentiment, unfavorable leverage and stiff competition keep us cautious. Thus, investors who own this Zacks Rank #3 (Hold) stock should retain it and others can wait for some time before taking a plunge.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
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