Specialty And Title Insurance With Qualia Will Drive Future Success

Key Takeaways

• Growth in Specialty Insurance and strategic expansion are boosting revenue, earnings, and net margins through technological efficiencies and favorable reserve developments.
  
• Capital management via dividends and share buybacks is enhancing earnings per share by reducing outstanding shares, supported by rising investment income.
  
• High mortgage rates and a tight real estate market may dampen growth in Title Insurance, affecting revenues and profitability.

Catalysts

Through its subsidiaries, provides insurance underwriting and related services primarily in the United States and Canada.

• Strong growth in Specialty Insurance, with net premiums written up 10% in the first quarter and expansion in E&S presence, is expected to boost both revenue and earnings.
  
• The strategic partnership with Qualia is anticipated to enhance technological efficiencies and reduce expenses, positively impacting net margins in the Title Insurance sector.
  
• Favorable prior year loss reserve developments in both Specialty and Title Insurance are likely to continue improving net margins and earnings.
  
• Investment income is on the rise due to higher yields on the bond portfolio, supporting overall earnings growth.
  
• Capital management through dividends and share repurchase programs is set to enhance earnings per share by reducing the number of outstanding shares.

Old Republic International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Old Republic International's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.4% today to 8.4% in 3 years time.
• Analysts expect earnings to reach $855.7 million (and earnings per share of $3.39) by about April 2028, up from $781.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 11.8x today. This future PE is lower than the current PE for the US Insurance industry at 14.1x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Old Republic International Future Earnings Per Share Growth

Risks

• Continued high mortgage interest rates and a tight real estate market may dampen growth in Title Insurance, affecting revenues from premium and fee collections.
  
• Reductions in tariff and trade-related business segments, such as the Canadian trucking industry, could lead to declines in commercial auto premiums and impact overall revenue and profitability.
  
• Despite the strong performance of Specialty Insurance, the reliance on emerging underwriting subsidiaries with limited historical data increases the risk of unforeseen claims and reserving inaccuracies, potentially impacting future earnings.
  
• Sustained high combined ratios in Title Insurance, largely due to market conditions, could squeeze net margins and profitability if the operating environment remains challenging.
  
• Executive compensation, which is tied to performance and resulted in higher expenses this quarter, may continue to elevate corporate expenses, affecting net earnings if performance trends change or compensation models adapt.

Valuation

• The analysts have a consensus price target of $42.0 for Old Republic International 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 $10.2 billion, earnings will come to $855.7 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $37.76, the analyst price target of $42.0 is 10.1% 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.