RLI Stock Near 52-Week High: What Investors Should Know?

Shares of RLI Corp. RLI closed at $151.38 on Friday, near its 52-week high of $155.59. This proximity underscores investor confidence. It has the ingredients for further price appreciation. Technical indicators for RLI show that the stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum.

Earnings of RLI grew 18.7% in the last five years, better than the industry average of 10.5%. RLI has a solid surprise history. It surpassed earnings estimates in each of the last four quarters, the average being 140.08%.

Shares of RLI have gained 13.7% in the year-to-date period compared with the industry's growth of 28.2%. The stock has outperformed the Zacks S&P 500 composite's growth 13.3%.

RLI YTD Price Performance

Image Source: Zacks Investment Research

Positive Analyst Sentiment Instills Confidence in RLI

Three of the four analysts covering the stock have raised estimates for 2024 and 2025 over the past 60 days. The Zacks Consensus Estimate for 2024 and 2025 increased 4.9% and 3.6%, respectively.

The consensus estimate for 2024 and 2025 earnings indicates an improvement of 24.2% and 2.6%, respectively. RLI has a Growth Score of B.

RLI's Favorable Return on Capital

Return on equity in the trailing 12 months was 18.3%, higher than the industry average of 7.9%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders. Its return on invested capital has increased every year. This reflects RLI's efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 7.6%, higher than the industry average of 6%.

Key Points to Note for RLI

Product diversification across the Casualty, Property and Surety segments of the company has fueled the insurer's growth and financial success. The Casualty segment continues to gain from an expanded distribution base in personal umbrella and rate increases.

The commercial property business has been gaining from higher wind and earthquake exposure rates. Rate increases, improved retention and new opportunities in the inland marine space should benefit marine products.

The Surety segment continues to benefit from its compelling product portfolio, growth within existing accounts and writing of bonds with new customers.
Building materials inflation and new accounts will aid commercial and contract surety businesses in the future. RLI boasts solid operating results and its financial position remained strong. Operating cash flows are likely to gain from higher premium receipts.

The insurer has a sound capital structure, helping 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 Impressive Dividend History

RLI has been paying dividends for 187 consecutive quarters and increased regular dividends in each of the last 48 years at an eight-year (2016-2023) CAGR of 3.9%. In addition, the insurer has been paying special dividends since 2011. Over the past five years, the insurer has returned $819 million to shareholders. RLI has $87.5 million of remaining capacity from the repurchase program.

RLI Shares Are Expensive

The stock is overvalued compared with its industry. It is currently trading at a price-to-book ratio of 4.37, higher than the industry average of 1.61.

However, shares of other players from the same space, like Axis Capital Holdings Limited AXS, CNA Financial Corporation CNA and NMI Holdings Inc NMIH, are trading at a discount to the industry average.

Conclusion

A strong product portfolio, rate increases, improved retention, higher premium receipts and sufficient liquidity and effective capital deployment should continue to favor RLI over the long term. Coupled with favorable growth estimates and ROE, the time appears right for potential investors to bet on this Zacks Rank #2 (Buy) insurer.

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