RLI Trading at a Premium to Industry: How Should You Play the Stock?

RLI Corp. RLI shares are trading at a premium to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 4.28X is higher than the industry average of 1.49X and the Finance sector’s 4.1X. However, its shares are trading at a discount to the Zacks S&P 500 Composite’s 7.82X.Shares of The Travelers Companies, Inc. TRV, Arch Capital Group Ltd. ACGL and Cincinnati Financial Corporation CINF are also trading at a multiple higher than the industry average.Image Source: Zacks Investment ResearchRLI shares have gained 0.6% in the past year compared with the industry, the Finance sector and the Zacks S&P 500 composite’s return of 18.7%, 16.2% and 11%, respectively. RLI Lags Industry, Sector and S&P 500 in 1 YearImage Source: Zacks Investment ResearchWith a market capitalization of $6.86 billion, the average volume of shares traded in the last three months was 0.4 million.Closing at $74.83 on Thursday, the stock stands below its 52-week high of $91.14. The stock is trading below the 50-day and 200-day simple moving averages (SMA) of $76.04 and $78.11, respectively, indicating downward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.RLI Price Movement vs. 50-Day Moving AverageImage Source: Zacks Investment ResearchRLI’s Growth Projection EncouragesThe Zacks Consensus Estimate for RLI’s 2025 earnings per share indicates a year-over-year increase of 3.4%. The consensus estimate for revenues is pegged at $1.78 billion, implying a year-over-year improvement of 6.5%. The consensus estimate for 2026 earnings per share and revenues indicates an increase of 3.2% and 5.9%, respectively, from the corresponding 2025 estimates. RLI’s Favorable Return on CapitalRLI’s return on equity (ROE) has also been improving over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. The trailing 12 months ROE was 16.2%, which compared favorably with the industry average of 7.7%.Factors Acting in Favor of RLIRLI continues to grow through product diversification. Its compelling product portfolio, focus on introducing new products, re-underwriting of several of its products, sturdy business expansion, sustained rate increase and expanded distribution position this insurer well to generate an improved top line. A conservative underwriting and reserving policy helps RLI achieve favorable reserve releases from the prior years despite incurring catastrophe losses.RLI is one of the industry’s most profitable P&C writers, with an impressive track record of delivering 29 consecutive years of underwriting profitability.This insurer has been enhancing shareholders' value by distributing wealth in the form of dividend hikes, special dividends and share buybacks. It boasts an impressive dividend track record. It has increased regular dividends in each of the last 50 years and paid special dividends since 2011, making the stock an attractive pick for yield-seeking investors. The insurer has been strengthening its balance sheet by improving liquidity and leverage. A sound capital structure helps it meet the interests of its policyholders, enhance operations in the insurance sector and drive its book value for the long term.Wrapping Up: Keep On HoldingRLI is one of the industry’s most profitable P&C writers, with an impressive track record of delivering 29 consecutive years of underwriting profitability. A strong local branch office network, a broad range of product offerings, and a focus on specialty insurance lines should continue to contribute to its superior profitability. The stock's impressive dividend history makes it an attractive pick for yield-seeking investors. Given its premium valuation, it is prudent to wait for a better entry point for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report RLI Corp. (RLI): Free Stock Analysis Report The Travelers Companies, Inc. (TRV): Free Stock Analysis Report Cincinnati Financial Corporation (CINF): Free Stock Analysis Report Arch Capital Group Ltd. (ACGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks