It has been about a month since the last earnings report for Markel (MKL). Shares have lost about 9.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Markel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Markel's Q3 Earnings Beat, Revenues Miss Estimates
Markel Corporation reported third-quarter 2021 earnings of $13.77 per share, which beat the Zacks Consensus Estimate by 6.4%. The bottom line improved more than three-fold year over year.
The third-quarter results reflect new business and double-digit rate growth, which drove premiums. Insurance operations benefited from changes in property catastrophe underwriting strategy as Markel delivered an improved combined ratio despite significant natural catastrophe events.
Quarterly Operational Update
Total operating revenues of $2.7 billion missed the Zacks Consensus Estimate by 1.1%. The top line rose 14.4% year over year on higher premiums earned, services and other revenues, product revenues, and net investment income.
Earned premiums increased 17% in the quarter, reflecting continued growth in gross premium volume from new business and more favorable rates.
Net investment income increased about 1% year over year to $91.3 million in the third quarter.
Total operating expenses of Markel increased 10.2% year over year to $2.4 billion, primarily due to higher losses and loss adjustment expenses; underwriting, acquisition and insurance expenses; products expenses, and amortization of intangible assets.
Markel’s combined ratio improved 400 basis points (bps) year over year to 93 in the reported quarter, benefiting from a lower current accident year loss ratio, given the benefit of a favorable pricing environment and the impact of actions taken to enhance the underwriting portfolio.
Segmental Updates
Insurance: Gross premium increased 25% year over year to $1.9 billion, driven by growth across several product lines, most notably within the professional liability and general liability product lines, which experienced higher new business volume and benefited from more favorable rates.
Underwriting profit was $146.7 million, up 96% year over year. The combined ratio improved 420 bps year over year to 89.4.
Reinsurance: Gross premiums decreased 19% year over year to $180.7 million, attributable to lower gross premiums across several product lines, most notably within the general liability, credit and surety and property product lines.
Underwriting loss of $30.4 million was narrower than the $34.9 million loss incurred in the year-ago quarter. The combined ratio improved 360 bps year over year to 112.1 in the third quarter.
Markel Ventures: Operating revenues of $908.2 million improved 10.2% year over year, primarily driven by organic growth and contributions from Lansing Building Products.
Operating income of $51 million decreased 31% year over year.
Financial Update
Markel exited the third quarter with cash and cash equivalents, and restricted cash and cash equivalents of $4.5 billion as of Sep 30, 2020, down 13.6% from 2020 end.
The debt balance increased 22.5% year over year to $4.3 billion as of Sep 30, 2021.
Book value per share increased 10.8% from the end of 2020 to $980.99 as of Sep 30, 2021.
Net cash from operating activities was $1.6 billion in the first nine months of 2021, up 28.6% year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5.58% due to these changes.
VGM Scores
At this time, Markel has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Markel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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