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Kemper (KMPR) Stock Rallies 38% in a Year's Time: Here's Why

Zacks Equity Research

Kemper Corporation ’s KMPR shares have soared nearly 37.6% in a year against the industry’s decline of 12.9% and the Zacks S&P 500 composite's gain of 1.7%. With a market capitalization of $5.2 billion, average volume of shares traded in the last three months were 0.2 million.

What’s Behind the Upside?

Kemper delivered positive earnings surprise in the last four quarters with the average beat being 28.65%.

The company’s earnings and returns improved, with the business growing both organically and inorganically. Adjusted consolidated net operating income surged 175%. Earned premiums increased 44% driven by volume growth within Specialty auto business. Operating cash flows increased 125% to $540 million.

The Specialty P&C insurance segment posted double-digit growth and policies in force with low-90s combined ratios. The business was strengthened by the acquisition of Infinity Property and Casualty Corporation.

Kemper’s return on equity — a measure of profitability — is 10.1%, better than the industry average of 8.1%. This reflects the company’s prudent usage of its shareholders’ funds.

Kemper carries a favorable Growth Score of B. With respect to returning value to shareholders, on Feb 6, the board of directors increased quarterly dividend by 4%, marking the first increase since 2011.

Kemper currently carries a Zacks Rank #3 (Hold). The consensus mark for earnings and revenues indicates year-over-year improvement in both 2019 and 2020. The Zacks Consensus Estimate for current-year earnings per share is pegged at $5.45, indicating a year-over-year increase of 24.7% on 29.8% increase in revenues to $4.8 billion. For 2020, the estimate is pegged at $6.10, indicating a year-over-year rise of 11.9% on 6.2% revenue growth to $5.1 billion.

The company boasts a sturdy portfolio of businesses in Specialty auto, Preferred home and auto, and basic life and supplemental health and accident products, which provides capital diversification benefits. The personal insurance and Life & Health businesses provide Kemper diversified sources of earnings and liquidity.

The company also has reinsurance programs in place to insulate it from low-frequency, high-severity catastrophes. Its program for 2019 provides 95% coverage against $225 million of losses arising from a single event in excess of $50 million retention. The company also renewed the homeowners aggregate catastrophe reinsurance program.

These together should help the stock continue the bull run.

Stocks to Consider

Some better-ranked stocks from the insurance industry are MGIC Investment Corporation MTG, Cigna Corp. CI and Arch Capital Group Ltd. ACGL.

MGIC Investment provides private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. It came up with average four-quarter beat of 22.88%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here .

Cigna provides insurance and related products and services in the United States as well as internationally. It delivered average four-quarter beat of 15.74%. The stock sports a Zacks Rank of 1.

Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. It delivered average four-quarter beat of 14.75%. The stock sports a Zacks Rank of 1.

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