We came across a bullish thesis on Everest Group, Ltd. (EG) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on EG. EG Technologies, Inc. share was trading at $407.04 as of Oct 4th. EG’s trailing and forward P/E were 5.98 and 5.63 respectively according to Yahoo Finance.
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Everest Group is the 4th largest property and casualty reinsurer, the company hasn’t left a single stone unturned right from increasing their insurance policy sales in this low policy claims period to investing in the right kind of bonds generating alpha. They have been growing remarkably with revenue up by 11% annually over the last 4 years and profits up by 47% annually over the same period. Despite the potential for short-term volatility from hurricane exposure, Everest Group remains a solid long-term compounder given that EG has been expanding internationally, and the upfront costs of this growth are expected to yield returns in the next two years. Also, the insurance market is entering a soft market which is a favorable phase that typically sees higher policy sales and fewer claims would benefit the company going forward. This, combined with management’s commitment and confidence in the company is reflected in significant insider buying which is rare for a mature mid-cap company.
Despite the potential for short-term volatility from hurricane exposure, Everest Group remains a solid long-term compounder given that EG has been expanding internationally, and the upfront costs of this growth are expected to yield returns in the next two years. Also, the insurance market is entering a soft market which is a favorable phase that typically sees higher policy sales and fewer claims would benefit the company going forward. This, combined with management’s commitment and confidence in the company is reflected in significant insider buying which is rare for a mature mid-cap company.
However, it is better to remain cautious because of the potential near-term challenges that company faces particularly due to Hurricane Helene, which may expose EG’s reinsurance portfolio to losses. While EG has demonstrated superior risk management, particularly in the Southeastern U.S. where probable max losses have been reduced, the full financial impact of recent disasters remains uncertain.
While its stock price has remained flat over the last 18 months, there’s potential for re-rating as the company’s multiples, currently at a price-to-earnings ratio of 5.5x, are lower than peers that trade between 7x and 15x. EG’s price-to-sales ratio, now at 1.0x, could rise back to 1.3x as well.
With EG’s strong track record, an 11% annual revenue growth rate, and potential for multiple expansion, shareholders could see substantial returns. If valuation multiples revert, EG could offer 25% or more in annual returns over the next two years. Also, the company recently issued new shares to fund its expansion, further setting the stage for long-term growth.
Everest Group, Ltd. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held EG at the end of the second quarter which was 40 in the previous quarter. While we acknowledge the risk and potential of EG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.