RenaissanceRe trades at $328.71 per share and has stayed right on track with the overall market, gaining 11.2% over the last six months. At the same time, the S&P 500 has returned 14%.
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Why Is RenaissanceRe Not Exciting?
We’re cautious about RenaissanceRe. Here are three reasons you should be careful with RNR, plus one stock we’d rather own.
1. Net Premiums Earned Hit a Plateau
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
RenaissanceRe’s net premiums earned was flat over the last two years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect RenaissanceRe’s revenue to drop by 9%, a decrease from its 3% annualized growth for the past two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
RenaissanceRe’s EPS grew at a weak 11.6% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
RenaissanceRe isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.2× forward P/B (or $328.71 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than RenaissanceRe
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