Palomar Holdings’ PLMR shares have risen 35.9% year to date, outperforming the industry’s growth of 13.8%, the Finance sector’s rise of 4.7% and the S&P 500 Composite’s gain of  5.6%. With a market capitalization of $1.9 billion, the average volume of shares traded in the last three months was 0.2 million.

Strong premium retention rates, new partnerships, rate increases and effective capital deployment continue to drive Palomar. This Zacks Rank #2 (Buy) specialty insurer has a decent history of delivering earnings surprises in the last four reported quarters.

Palomar’s trailing 12-month return on equity was 19.4%, which came ahead of the industry's average of 7.23%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders' funds.

Also, the return on invested capital has been 17.2% over the trailing 12 months, outperforming the industry's average of 5.6%. The company has raised its capital investment significantly, indicating PLMR’s efficiency in utilizing funds to generate income.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved north 1.4% and 1.2%, respectively, in the past seven days, reflecting analyst’s optimism.

Image Source: Zacks Investment Research

Can PLMR Retain the Momentum?

The insurer’s premiums continue to benefit from the increased volume of policies written across the lines of business. New business generated, strong retention rates, strategic expansion of products’ geographic and distribution footprint, and new partnerships should help in retaining the momentum.

Its high-quality fixed-income securities, higher average balance of investments and an increase in fixed-income yields favor improvement in net investment income, which witnessed a five-year CAGR (2018-2023) of 49%.

Palomar’s fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility. Since 2017, Palomar has been able to maintain a combined ratio of less than 95%, except for 2020. The combined ratio reflects its underwriting profitability.

Palomar boasts a debt-free balance sheet with no exposure to the equity markets. Sustained operational excellence helps it maintain a strong capital position. The insurer engages in share buyback and has $43.5 million remaining available for future repurchases.

All these positives together drive optimistic growth projections. The Zacks Consensus Estimate for 2024 earnings is pegged at $4.28 per share, indicating an increase of 16% on 24.8% higher revenues of $465.3 million. The consensus estimate for 2025 earnings is pegged at $5.04 per share, indicating an increase of 17.9% on 23.3% higher revenues of $573.6 million.

Palomar expects to generate adjusted net income between $110 million and $115 million in 2024.  It has a Growth Score of B. This style score analyzes the growth prospects of a company. Back-tested results have shown that stocks with a Growth Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 offer better returns.