Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. But concerns about claims severity and tightening regulations have tempered enthusiasm, limiting the industry’s gains to 2.4% over the past six months. This return lagged the S&P 500’s 4.8% climb.
Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. Taking that into account, here are three insurance stocks we’re steering clear of.
Equitable Holdings (EQH)
Market Cap: $11.65 billion
Tracing its roots back to 1859 as one of America's oldest financial institutions, Equitable Holdings (NYSE:EQH) provides retirement planning, asset management, and life insurance products through its two main franchises, Equitable and AllianceBernstein.
Why Do We Think EQH Will Underperform?
- The company has faced growth challenges as its 2.2% annual revenue increases over the last five years fell short of other insurance companies
- Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 13.3 percentage points
At $41.19 per share, Equitable Holdings trades at 5.7x forward P/E. To fully understand why you should be careful with EQH, check out our full research report (it’s free).
Fidelity National Financial (FNF)
Market Cap: $13.73 billion
Issuing more title insurance policies than any other company in the United States, Fidelity National Financial (NYSE:FNF) provides title insurance and escrow services for real estate transactions while also offering annuities and life insurance through its F&G subsidiary.
Why Does FNF Fall Short?
- Net premiums earned contracted by 1.6% annually over the last five years, showing unfavorable market dynamics this cycle
- Earnings per share fell by 1.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Book value per share was flat over the last five years, indicating it’s failed to build equity value this cycle
Fidelity National Financial is trading at $50.64 per share, or 1.4x forward P/B. Check out our free in-depth research report to learn more about why FNF doesn’t pass our bar.
Everest Group (EG)
Market Cap: $15.49 billion
Rebranded from Everest Re in 2023 to reflect its evolution beyond just reinsurance, Everest Group (NYSE:EG) underwrites property and casualty reinsurance and insurance worldwide, serving insurance companies, corporations, and other clients across six continents.
Why Is EG Not Exciting?
- Projected sales decline of 5.2% for the next 12 months points to a tough demand environment ahead
- Efficiency has decreased over the last two years as its pre-tax profit margin fell by 4 percentage points
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 17.7% annually while its revenue grew
Everest Group’s stock price of $345.04 implies a valuation ratio of 0.8x forward P/B. Read our free research report to see why you should think twice about including EG in your portfolio.
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