Insurtech Adoption Will Improve Efficiency And Cost Savings In Claims Management

Key Takeaways

• Strategic insurtech solutions enhance efficiency and cost savings, likely boosting net margins and earnings over time.
  
• Strong international growth and diversification from weather dependency expected to drive steady revenue and earnings growth.
  
• Reliance on weather events and increased costs have decreased earnings, impacting liquidity and exposing vulnerabilities in key revenue segments.

Catalysts

Provides claims management and outsourcing solutions for carriers, brokers, and corporations in the United States, the United Kingdom, Europe, Canada, Australia, Asia, and Latin America.

• Crawford's strategic enhancements in insurtech solutions are positioned to drive greater efficiencies and cost savings in the claims process, potentially increasing net margins and earnings over time.
  
• With a strong balance sheet and low leverage, Crawford is well-positioned to invest in future growth through strategic acquisitions and technology advancements, potentially leading to an increase in revenue and earnings.
  
• The company has reported significant revenue growth in its non-weather-dependent businesses, such as Broadspire, which set a new quarterly revenue record. This diversification away from weather dependency is expected to drive steady revenue growth.
  
• Crawford's international operations are experiencing solid revenue growth and margin expansion due to improvements in key markets, likely leading to enhanced earnings and profitability.
  
• The expectation of increased severe weather activities over the long term could drive demand for Crawford's services, potentially increasing revenue from weather-related claims in the future.

Crawford Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Crawford's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 7.2% in 3 years time.
• Analysts expect earnings to reach $108.9 million (and earnings per share of $2.68) by about January 2028, up from $20.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, down from 28.6x today. This future PE is lower than the current PE for the US Insurance industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 6.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.79%, as per the Simply Wall St company report.

Crawford Future Earnings Per Share Growth

Risks

• The reduced frequency of storms led to a 39% reduction in weather-related revenue, indicating reliance on such events for revenue generation and potentially impacting consolidated earnings.
  
• Increased corporate unallocated costs, due to various factors such as self-insured expenses and professional fees, have contributed to a decline in operating earnings, which could pressure net margins.
  
• Free cash flow was negative $18.4 million year-to-date, primarily due to lower operating earnings and unbilled receivables, potentially impacting liquidity and long-term cash generation capabilities.
  
• North America Loss Adjusting faced a 48% decrease in operating earnings due to revenue challenges and increased expenses, highlighting vulnerabilities in a key revenue segment.
  
• Platform Solutions' 24% decline in revenue demonstrates challenges in restoring demand for catastrophe services amidst reduced storm frequency, impacting this segment's earnings potential.

Valuation

• The analysts have a consensus price target of $13.0 for Crawford based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $108.9 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 6.8%.
• Given the current share price of $11.7, the analyst's price target of $13.0 is 10.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.