RLI Lags Industry, Loses 9% YTD: Here's How to Play the Stock

RLI Corp. RLI shares have lost 8.8% year to date, underperforming its industry, the sector and the Zacks S&P 500 composite’s return in the same time frame. The stock is trading way below its 52-week high. RLI shares are trading below the 50-day moving average, indicating a bearish trend. A strong local branch office network, a broad range of product offerings, a focus on specialty insurance lines and an impressive record of underwriting profits poise this insurer for growth.RLI vs. Industry, Sector & S&PImage Source: Zacks Investment ResearchRLI Shares Are ExpensiveRLI shares are trading at a premium to the industry. Its price-to-book of 4.51X is higher than the industry average of 1.62X.This company has a market capitalization of $6.9 billion. The average volume of shares traded in the last three months was 0.4 million.The stock is expensive compared with other players like The Travelers Companies Inc TRV, Cincinnati Financial CINF and W. R. Berkley Corporation WRB, which are trading at a discount to the industry average.Optimistic Growth ProjectionsThe Zacks Consensus Estimate for 2025 earnings is pegged at $3.08, indicating a 7.3% year-over-year increase on 6.6% higher revenues of $1.8 billion. The consensus estimate for 2026 earnings is pegged at $3.10, indicating a 0.6% year-over-year increase on 5.9% higher revenues of $1.9 billion. Factors Favoring RLIRLI continues to grow on product diversification. Its compelling product portfolio, focus on introducing new products, re-underwriting of several of its products, sturdy business expansion, sustained rate increase and expanded distribution poise this insurer well to generate an improved top line. RLI is exposed to catastrophe losses that induce underwriting volatility by the nature of its operations.  It maintains a conservative underwriting and reserving policy and continues to achieve favorable reserve releases from the prior years.Despite exposure to cat loss, the combined ratio, which reflects its underwriting profitability, has been exemplary. It is continuously making efforts to boost underwriting results. To that end, RLI dropped the underperforming products from its property business.RLI distributes wealth in the form of dividend hikes and special dividends and boasts an impressive dividend track record. RLI has been paying dividends for 189 consecutive quarters and increased regular dividends in each of the last 49 years, increasing at a five-year (2019-2024) CAGR of 8.8%. Its dividend yield of 0.8% is better than the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors. In addition, the insurer has also been paying special dividends since 2011.The insurer has been strengthening its balance sheet with improving liquidity and leverage. A sound capital structure helps it meet the interests of its policyholders, enhance operations in the insurance sector and aid growth in its book value for the long term. RLI’s Return on CapitalRLI’s return on equity (“ROE”) has also been improving over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. The trailing 12 months ROE was 16.6%, which compared favorably with the industry average of 7.6%.Return on invested capital (ROIC) has also been improving over the last few quarters while the insurer has been making investments, reflecting RLI’s efficiency in utilizing funds to generate income.  However, ROIC in the trailing 12 months was 2%, comparing favorably with the industry average of 5.8%. Average Target Price for RLI Suggests an UpsideBased on short-term price targets offered by five analysts, the Zacks average price target is $81.80 per share. The average suggests a potential 9.2% upside from Wednesday’s closing.To ConcludeRLI is one of the industry’s most profitable P&C writers, with an impressive track record of delivering 29 consecutive years of underwriting profitability. A strong local branch office network, a broad range of product offerings, and a focus on specialty insurance lines should continue to contribute to its superior profitability. The stock's impressive dividend history makes it an attractive pick for yield-seeking investors. Given its expensive valuation, it is prudent to wait for a better entry point for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>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 RLI Corp. (RLI): Free Stock Analysis Report The Travelers Companies, Inc. (TRV): Free Stock Analysis Report W.R. Berkley Corporation (WRB): Free Stock Analysis Report Cincinnati Financial Corporation (CINF): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks