PLMR Rallies 40% YTD: Time to Buy the Stock Despite Premium Valuation?

Palomar Holdings PLMR stock has gained 40% year to date, outperforming the industry’s increase of 12.9%. In the same time frame, its sector declined 3.9% and the Zacks S&P 500 composite decreased 9.1%.

With a capitalization of $3.9 billion, the average number of shares traded in the last three months was 0.2 million.  

Palomar envisions being an industry leader in the crop business and among the top 10 crop premium riders in the United States by 2025. It also believes that crops will secure $500 million of premiums in the intermediate future. 

PLMR vs Industry, Sector & S&P 500 YTD

PLMR shares are trading above the 50-day moving average, indicating a bullish trend.

Premium Valuation

Shares of PLMR are trading at a premium to the insurance industry. Its price-to-earnings of 5.41X is higher than the industry average of 1.61X.

Shares of other insurers like Horace Mann Educators HMN, Lemonade LMND and Employers Holdings Inc. EIG are trading at a multiple lower than the industry average.

Average Target Price Reflects a Downside

Based on short-term price targets offered by six analysts, the Zacks average price target is $146.67 per share. The average indicates a potential 0.8% downside from the last closing price.

PLMR’s Favorable Return

Palomar’s trailing 12-month return on equity was 21.7%, which came ahead of the industry average of 8.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Also, the return on invested capital has been 18.9% over the trailing 12 months, outperforming the industry average of 6.4%. The company has raised its capital investment significantly, reflecting its efficiency in utilizing funds to generate income.

Upbeat Analyst Sentiments

The Zacks Consensus Estimate for 2025 and 2026 has moved 4 cents north each in the past 30 days. 
 

The Zacks Consensus Estimate for 2025 earnings is pegged at $6.75, implying a 32.6% year-over-year increase on 36.8% higher revenues of $751.4 million. The consensus estimate for 2026 is pegged at $7.99, indicating an 18.4% year-over-year increase on 26% higher revenues of $946.4 billion.

Palomar’s Growth Path

Palomar’s fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

Increased volume of policies written across the lines of business, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships should continue to drive premiums for Palomar. It also estimates crop insurance to contribute $200 million in 2025.

Palomar noted that Surety is an attractive market segment. Like crop insurance, it is not correlated to the P&C cycle and thus has the potential to be an important growth driver for Palomar over the longer term. 

Net investment income is poised to benefit from high-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields. PLMR’s solid investment portfolio should help it generate strong net investment income.

PLMR’s risk transfer strategy lowers exposure to major events, which reduces earnings volatility and favors combined ratio improvement. 

Palomar maintains a strong capital position and boasts a debt-free balance sheet. As part of wealth distribution to shareholders, PLMR engages in share buybacks.
Banking on its operational strength, Palomar expects to generate adjusted net income between $180 million and $192 million in 2025.  

What Should You Do With PLMR Stock?

Palomar aims to be an industry leader in the crop business and its focus on Surety bodes well for growth. Solid product portfolio as well as geographic expansion, appointment of new producers, strategic partnerships with other insurance carriers and rate increases should drive growth.  

This specialty insurer also has reinsurance in place to limit its exposure to losses and enable it to underwrite policies with sufficient limits to meet policyholder needs. All these together instill confidence in this specialty insurer.

Thus, despite its premium valuation, this Zacks Rank #1 (Strong Buy) insurer is worth adding to an investor’s portfolio.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research