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Why Is Markel (MKL) Up 4.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Markel (MKL). Shares have added about 4.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Markel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Markel Q2 Earnings and Revenues Top Estimates, Rise Y/Y

Markel Corporation reported second-quarter 2021 earnings of $19.14 per share, which beat the Zacks Consensus Estimate by 23.9%. The bottom line improved 28.5% year over year.

Results reflect double-digit premium growth in underwriting operations through both organic growth in new businesses and more favorable rates.

Quarterly Operational Update

Total operating revenues of $2.8 billion beat the Zacks Consensus Estimate by 11.1%. The top line rose 27.2% year over year on higher premiums earned, services and other revenues, product revenues, and net investment income.

Earned premiums increased 15.3% in the quarter, reflecting continued growth in gross premium volume from new businesses and more favorable rates. Net investment income increased 0.7% year over year to $96.3 million in the second quarter.

Total operating expenses of Markel increased 28.1% year over year to $2.4 billion primarily due to higher losses and loss adjustment expenses; underwriting, acquisition and insurance expenses; products expenses; services and other expenses; and amortization of intangible assets. Markel’s combined ratio improved 100 basis points (bps) year over year to 87 in the reported quarter, benefiting from a lower current accident year loss ratio, given the benefit of more favorable premium rates.

Segmental Updates

Insurance: Gross premium increased 17% year over year to $1.8 billion, driven by growth across several product lines, mostly in professional liability and general liability product lines, which experienced higher new business volume and benefited from a more favorable rate. Underwriting profit was $205.3 million, up 52% year over year. Combined ratio improved 370 bps year over year to 84.2.

Reinsurance: Gross premiums increased 25% year over year to $279.4 million, driven by higher gross premiums in general liability, professional liability, and credit and surety product lines, partially offset by lower gross premiums in property product lines. Underwriting loss of $5 million compared unfavorably with the year-ago income of $24.8 million. Combined ratio deteriorated 1220 bps year over year to 101.9 in the second quarter.

Markel Ventures: Operating revenues of $1.1 billion improved 59% year over year, primarily driven by increased contribution from Lansing. Operating income of $108.7 million increased 37% year over year.

Financial Update

Markel exited the second quarter with cash and cash equivalents, and restricted cash and cash equivalents of $4.3 billion as of Jun 30, 2020, down 16.6% from 2020 end. The debt balance increased 19.4% year over year to $4.2 billion as of Jun 20, 2021.

Book value per share increased 10% from the end of 2020 to $974.45 as of Jun 30, 2021. Net cash from operating activities was $813.2 million in the first half of 2021, up 66.9% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.45% due to these changes.

VGM Scores

Currently, Markel has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Markel has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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