Should You Retain Trupanion Stock in Your Portfolio?

Trupanion, Inc. TRUP has been benefiting from a focus on pet health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries, as well as sufficient liquidity.

Growth Projections

The Zacks Consensus Estimate for Trupanion's 2024 earnings per share indicates an increase of 57.4% from the year-ago reported number. The consensus estimate for revenues is pegged at $1.26 billion, implying a year-over-year improvement of 13.7%.

The consensus estimate for 2025 earnings per share and revenues indicates an increase of 95.4% and 6.5%, respectively, from the corresponding 2024 estimates.

The expected long-term earnings growth rate is 39.3% compared with the industry average of 17.1%.

Zacks Rank & Price Performance

Trupanion currently carries a Zacks Rank #3 (Hold). Over the past year, the stock has gained 4.9% compared with the industry's growth of 21.6%.

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Earnings Surprise History

Trupanion has a decent earnings surprise history. Its earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 43.13%.

Business Tailwinds

This provider of insurance for cats and dogs operates in a large but underpenetrated market. Management noted that less than 5% of the pets are insured in North America and a very low number across most of Europe. There is immense scope as there has been a change in the attitude of pet owners, who are increasingly focusing on pet health and well-being. TRUP is well poised for growth in a total addressable market worth $34.1 billion.  The insurer envisions doubling its addressable market (defined by the number of veterinary hospitals) by the end of 2030.

Average monthly retention continues to be strong, ensuring uninterrupted revenue generation.  The insurer has also been expanding globally as part of its five-year growth plan, apart from strengthening its compelling portfolio. TRUP noticed increasing contributions from European endeavors, which added about 14,400 new pets during 2023.

Its focus on introducing products bodes well for growth. Its portfolio of products comprising Chewy and Aflac, medium and low average monthly revenue per unit products Firkin and Phi Direct and products in continental Europe contributed 22% to gross new pet adds in the first quarter of 2024.

Over the long term, TRUP remains focused on growing adjusted operating income and deploying increasing amounts at high internal rates of return. The pet insurer's five-year plan includes a 15% adjusted operating margin.

TRUP projects revenues in the range of $1.2 billion to $1.3 billion, up 14% from the 2023 level. Subscription revenues are projected between $842 million and $862 million, up 20% from 2023. Total adjusted operating income is now expected to be in the range of $100 million to $120 million, up 32% year over year.

A solid balance sheet supports investment in new product development and international expansion. Trupanion expects these investments to expand the addressable market in the long run.

TRUP has a Growth Score of A. This style score helps analyze the growth prospects of a company.

Headwinds

However, Trupanion has been incurring higher expenses over the last several years, attributable to an increase in technology and development, general and administrative, new pet acquisition expenses, depreciation and amortization. The insurer must strive to generate revenue growth higher than the rise in the magnitude of expense, or else the margin will continue to erode.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Reinsurance Group of America, Incorporated RGA, RLI Corp. RLI and NMI Holdings Inc NMIH, each carrying a Zacks Rank #2 (Buy) at present.

Reinsurance Group has a solid track record of beating earnings estimates in each of the trailing four quarters, the average being 19.48%. In the past year, shares of RGA have jumped 43.1%.The Zacks Consensus Estimate for RGA's 2024 and 2025 earnings implies year-over-year growth of 5.3% and 4.9%, respectively.

RLI's earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 132.39%. In the past year, shares of RLI have gained 1.9%.The Zacks Consensus Estimate for RLI's 2024 and 2025 revenues implies year-over-year growth of 18.4% and 3.8%, respectively.

NMI Holdings' earnings surpassed estimates in each of the last four quarters, the average surprise being 8.60%. In the past year, shares of NMIH have jumped 32.5%.The Zacks Consensus Estimate for NMIH's 2024 and 2025 revenues implies year-over-year growth of 10.6% and 7.6%, respectively.

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