Property & Casualty Insurance company W. R. Berkley is taking Wall Street by surprise today, falling to $51.54 and marking a -8.3% change compared to the S&P 500, which moved -1.0%. WRB is -13.1% below its average analyst target price of $59.31, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, W. R. Berkley shares have outstripped the S&P 500 by 5.2%, with a price change of 26.1%.
W. R. Berkley Corporation, an insurance holding company, operates as a commercial lines writers worldwide. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
W. R. Berkley's trailing 12 month P/E ratio is 13.7, based on its trailing EPS of $3.75. The company has a forward P/E ratio of 12.0 according to its forward EPS of $4.3 -- which is an estimate of what its earnings will look like in the next quarter. As of the second quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 19.48, and the S&P 500 has an average of 28.21. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.
W. R. Berkley's PEG ratio of 1.55 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in W. R. Berkley's free cash flow, which was $2.93 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $1.83 Billion and they've been growing at an average rate of 28.8%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in WRB have received an annualized dividend yield of 0.5% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. W. r. berkley's P/B ratio is 2.55 -- in other words, the market value of the company exceeds its book value by a factor of more than 2, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.85 as of the second quarter of 2024.
W. R. Berkley is likely fairly valued at today's prices because it has a Very low P/E ratio, an average P/B ratio, and generally positive cash flows with an upwards trend. The stock has poor growth indicators because of its weak operating margins with a stable trend, and an above average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into WRB's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
