RLI Corp. (NYSE:RLI) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance. Investor sentiment seems to be improving too, with the share price up 5.0% to US$109 over the past 7 days. Could this big upgrade push the stock even higher?
Following the upgrade, the current consensus from RLI's five analysts is for revenues of US$1.3b in 2022 which - if met - would reflect a decent 10% increase on its sales over the past 12 months. Statutory earnings per share are forecast to be US$6.15, approximately in line with the last 12 months. Prior to this update, the analysts had been forecasting revenues of US$1.2b and earnings per share (EPS) of US$4.07 in 2022. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of US$126, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on RLI, with the most bullish analyst valuing it at US$128 and the most bearish at US$112 per share. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that RLI's rate of growth is expected to accelerate meaningfully, with the forecast 10% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 8.3% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 2.5% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect RLI to grow faster than the wider industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So RLI could be a good candidate for more research.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple RLI analysts - going out to 2023, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.