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W.R. Berkley and Tri Pointe Homes have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – July 28, 2022 – Zacks Equity Research shares W.R. Berkley Corporation WRB as the Bull of the Day and Tri Pointe Homes TPH as the Bear of the Day.

Here is a synopsis of both stocks:

Bull of the Day:

W.R. Berkley Corporation is a large-cap insurance giant that topped quarterly estimates on July 21.

Better yet, W.R. Berkley has climbed in 2022 to hit new highs not too long ago and WRB has outpaced the S&P 500 and its industry over the past decade. Plus, the insurance firm is benefitting from the rising interest rate environment.

WRB’s Insurance Segments

W.R. Berkley is an insurance holding company that’s one of the larger commercial lines writers in the U.S. The firm operates worldwide within two broader segments of the property casualty business: Insurance and Reinsurance & Monoline Excess. W.R. Berkley joined the Fortune 500 ranks back in 2004 and was added to the S&P 500 in 2019.

Part of the company’s core focus is insurance for businesses, as well as high-value homes, vehicles, and collectibles. W.R. Berkley boasts that it’s able to offer tailored solutions for an array of businesses. The firm services industries that range from architects and engineers to life sciences and technology, as well as bars, restaurants, and almost anything else you can imagine.

W. R. Berkley’s insurance products feature more common offerings like accident & health, alongside ocean marine, product recalls, and beyond. Overall, W. R. Berkley has built over 50 insurance businesses to help independent agents and brokers deliver commercial and high net worth personal lines insurance solutions via nearly 200 offices.

Growth and Outlook

W.R. Berkley has steadily grown its revenue for the past 25 years, with its only two declines coming in 2008 and 2009. The company’s revenue surged 17% in 2021 and its outlook is strong after a great start to 2022.

WRB on July 21 topped Zacks' quarterly EPS projection by 33% to help improve its average bottom-line beat in the trailing four quarters to 30%. Plus, its adjusted earnings soared 44% YoY, with its net premiums written up 17% to a new record.

The insurer benefited from higher premiums, driven by strong rate increases in nearly all lines of business. Its operating return on equity came in at 18.8%. And W.R. Berkley’s FY22 and FY23 consensus earnings outlooks have popped since its report to help it grab a Zacks Rank #1 (Strong Buy) right now.

Zacks estimates currently call for W.R. Berkley’s revenue to climb 17% in 2022 to come in at $10.8 billion and then jump another 11% in 2023, driven by rising rates and a thriving business model. "The earnings power of this economic model going forward in a raising or increasing rate environment should not be underestimated,” CEO Robert Berkley said on its recent earnings call.

“I think it's something that people have an understanding for when we have the discussion, but I'm not sure if it's fully appreciated what this means for our economic model and again, the earnings power of the business as you see interest rates continue to move up.”

W.R. Berkley’s adjusted earnings are projected to climb over 19% in 2022 and another 11% in 2023 to $4.50 a share.

Price Performance and Valuation

As we touched on at the outset, W.R. Berkley shares are on a nice run, with it up 285% in the past decade vs. the benchmark index’s 185% and its industry’s 166%. WRB’s outperformance continues when you shrink the timetable.

The stock has charged 55% higher in the past two years compared to its Insurance-Property and Casualty’s 24% run. Best of all, the stock has climbed 16% in 2022 even as its industry dipped 4% and the S&P 500 dove 18%. W.R. Berkley closed regular trading Wednesday at $63.65 per share, which offers 14% upside to its current Zacks consensus price target.

W.R. Berkley’s valuation is stellar when considering its price performance. WRB trades at 15.3X forward 12-month earnings at the moment. This marks not too large of a premium compared to its own 20-year median and a 38% discount to WRB’s own highs.

W.R. Berkley also trades at over a 40% discount to its industry’s current 27X and offers value compared to the S&P 500’s 16.8X. In fact, it’s trading not too far off its own covid lows, which might have some value investors salivating.

Wrapping Up

W.R. Berkley’s balance sheet is solid and it has a proven history of generating consistently strong profits. W.R. Berkley also pays a dividend and buys back its own shares.

Of course, it’s always great to outperform the market. But climbing 15% in 2022, as nearly everything outside of energy and oil tumbles might warrant putting W.R. Berkley on your radar.

Bear of the Day:

Tri Pointe Homes is a higher-end homebuilder that operates in key growth markets in different areas of the U.S. TRI Pointe Homes posted a rather solid run of sales and earnings expansion and it befitted from the covid housing boom.

TRI Pointe Homes now faces tough to compete against periods and a rapidly cooling housing market.

TRI Pointe’s Story

TPH builds premium homes and communities across 10 states and Washington D.C. TRI Pointe’s portfolio includes key growth markets within California, Texas, Colorado, Arizona, and beyond. TRI Pointe’s revenue climbed by over 16% in both FY17 and FY18, before it slipped by 5% in 2019. It then jumped 6% in 2020 and 22% last year.

TRI Pointe, like all of the other homebuilders, benefitted from historically low mortgage rates, pandemic-driven moving, and remote work. On top of that, TPH and the entire housing market got a big boost from millennials, who are finally driving the market.

The demographic demand is still there as millennials start to form families. However, two years of an ultra-hot housing market has priced more people out at the moment.

Mortgage rates have also skyrocketed from close to historic lows all the way up to decade long highs in a flash. The average 30-year fixed rate mortgage was at 2.65% in January 2021 and around 3.35% in early 2022. It has since skyrocketed to 5.54%.

On the TRI Pointe front, it did manage to top our Q2 earnings and revenue estimates on July 21. But a “combination of higher mortgage interest rates and lower consumer confidence began to impact demand.”

Bottom Line

TRI Pointe’s overall outlook remains solid, with net new home orders last quarter relatively consistent with its pre-pandemic levels. But slowing demand and changing market conditions have recalibrated its revenue and earnings outlook.

Zacks estimates call for its revenue to dip over 3% in both 2022 and 2023. Its adjusted earnings are still expected to pop 12.9% this year, but slip 8.5% in 2023. Plus, its consensus EPS estimate for 2022 is down 13% in the last 60 days, with FY23 down from $6.28 per share directly prior to TRI Pointe’s Q2 release to $4.26 a share at the moment.   

TRI Pointe’s downward earnings momentum helps it land a Zacks Rank #5 (Strong Sell). TPH is also part of the Zacks Building Products-Home Builders industry that sits in the bottom 1% of more than 250 unique areas.

TPH shares have lagged the market in the last five years and in 2022, with it down 34% vs. the benchmark’s 18% drop. And the firm doesn’t pay a dividend to help counteract some of the slide. Therefore, it might be best to stay away from TRI Pointe for now.

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