Shares of Assurant Inc. AIZ have shot up by 34.6% year to date, leaving the rest of the insurance industry in the dust with a 0.4% decline. This seemingly unstoppable rise has led to the Finance sector and the Zacks S&P 500 composite gaining 7.9% and 19.6%, respectively, in the same time frame. With a market capitalization of a whopping $8.9 billion, the average volume of shares traded in the last three months was 0.4 million.
Driving Forces Behind the Surge
The well-performing Global Lifestyle business, growth in fee-based capital-light businesses, and solid capital management have acted as the rocket fuel for Assurant’s stratospheric rise. Analysts foresee an astronomical future, with the Zacks Consensus Estimate for 2023 and 2024 earnings moving north by 15.8% and 7%, respectively, in the past 30 days. Sporting a Zacks Rank #1 (Strong Buy), Assurant is basking in the glow of surpassing expectations in the last five quarters. The company’s earnings have soared 18.3% in the past five years, eclipsing the industry average of 4.5%. It proudly flaunts a VGM Score of B.
Is This a Bubble Waiting to Burst?
As with any rapid ascent, doubts loom. Can Assurant cement its position and sustain this meteoric rise? The Zacks Consensus Estimate for 2023 earnings suggests a 30.8% increase on 5.4% higher revenues of $10.9 billion. While the long-term earnings growth rate is currently pegged at 14.6%, better than the industry average of 12.5%, a skeptic might wonder if this is all a towering house of cards waiting to tumble. Assurant, however, seems hell-bent on proving the naysayers wrong by focusing on growing fee-based capital-light businesses.
Driving the Growth Engine
According to divine prophecy, contributions from fee-based capital-light businesses will continue to grow in double digits over the longer term. Performance improvement across various domains, including Homeowners, Global Housing, Connected Living, and Global Automotive, is expected to supercharge this growth. Assurant’s relentless push to ramp up the Connected Living platform, introduce innovative products and services, and forge new partnerships is prophesied to double margins in Connected Living to 8% over the long term. The company’s investment income has been surging in an improved rate environment, poised to reap the rewards from higher yields on fixed-maturity securities.
The Weight of the Future and Upbeat Prognostications
Assurant’s robust guidance suggests adjusted EBITDA and adjusted earnings, excluding reportable catastrophes, are set to soar in the future. Global Housing adjusted EBITDA, excluding reportable catastrophes, is expected to experience a significant upswing. The company’s strong focus on capital management is evident, with increased dividends for the last 19 straight years and a substantial amount remaining under its current share buyback authorization.
Seeking Assurance in the Street
Despite Assurant’s enviable position, some other stocks might catch the discerning eye of an investor. Top-ranked stocks in the insurance industry such as Enact Holdings ACT, Everest Group, Ltd EG, and Old Republic International ORI, each carrying a Zacks Rank #2 (Buy), seem to be vying for attention alongside Assurant’s glory. Their impressive performance metrics might give any doubters pause for thought.
Assurant’s sizzling performance has certainly made it the talk of the town, but could it maintain its momentum? Only time will tell whether this is truly a phoenix rising from the ashes or a flash in the pan.