Analyzing Erie Indemnity (ERIE) & RLI (RLI)

RLI (NYSE: RLI) and Erie Indemnity (NASDAQ:ERIE) are both mid-cap finance companies, but which is the better stock? We will compare the two businesses based on the strength of their valuation, earnings, profitability, analyst recommendations, risk, institutional ownership and dividends.

Dividends

RLI pays an annual dividend of $0.84 per share and has a dividend yield of 1.3%. Erie Indemnity pays an annual dividend of $3.36 per share and has a dividend yield of 2.9%. RLI pays out 35.4% of its earnings in the form of a dividend. Erie Indemnity pays out 83.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. RLI has raised its dividend for 22 consecutive years and Erie Indemnity has raised its dividend for 41 consecutive years. Erie Indemnity is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

RLI has a beta of 1.27, meaning that its stock price is 27% more volatile than the S&P 500. Comparatively, Erie Indemnity has a beta of 0.42, meaning that its stock price is 58% less volatile than the S&P 500.

Insider & Institutional Ownership

84.0% of RLI shares are owned by institutional investors. Comparatively, 31.2% of Erie Indemnity shares are owned by institutional investors. 6.1% of RLI shares are owned by company insiders. Comparatively, 46.8% of Erie Indemnity shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares RLI and Erie Indemnity’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
RLI 13.17% 8.21% 2.46%
Erie Indemnity 12.62% 24.98% 13.51%

Earnings and Valuation

This table compares RLI and Erie Indemnity’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
RLI $797.22 million 3.46 $105.02 million $2.37 26.39
Erie Indemnity $1.60 billion 3.33 $210.36 million $4.02 28.64

Erie Indemnity has higher revenue and earnings than RLI. RLI is trading at a lower price-to-earnings ratio than Erie Indemnity, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of current ratings for RLI and Erie Indemnity, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
RLI 1 3 0 0 1.75
Erie Indemnity 0 0 0 0 N/A

RLI currently has a consensus price target of $53.00, suggesting a potential downside of 15.25%. Given RLI’s higher probable upside, equities analysts plainly believe RLI is more favorable than Erie Indemnity.

Summary

Erie Indemnity beats RLI on 9 of the 15 factors compared between the two stocks.

About RLI

RLI Corp. is a specialty insurance company. The Company underwrites selected property and casualty insurance through subsidiaries, as well as offers insurance coverages in both the specialty admitted, and excess and surplus markets. It operates through Casualty, Property and Surety segments. Its Casualty segment consists of commercial and personal umbrella, general liability, commercial transportation, professional services, small commercial, executive products, medical professional liability and other casualty businesses. Its property segment consists of commercial property, marine, specialty personal, property reinsurance and crop reinsurance businesses. Its surety segment consists of miscellaneous, commercial, contract and energy businesses. The Company conducts its operations principally through three insurance companies: RLI Insurance Company (RLI Ins.), Mt. Hawley Insurance Company (Mt. Hawley) and Contractors Bonding and Insurance Company (CBIC).

About Erie Indemnity

Erie Indemnity Company is a management company. The Company serves as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange). The Exchange is a reciprocal insurer that writes property and casualty insurance. The Company’s function is to perform certain services for the Exchange relating to the sales, underwriting and issuance of policies on behalf of the Exchange. The sales related services the Company provides include agent compensation, and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written, as well as additional commissions and bonuses to agents. The underwriting services the Company provides include underwriting and policy processing expenses. It provides information technology services that supports various functions. The remaining services the Company provides include customer service and administrative costs.

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