Critical Analysis: RLI (NYSE:RLI) & Universal Insurance (UVE)

Universal Insurance (NYSE: UVE) and RLI (NYSE:RLI) are both financials companies, but which is the superior investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, institutional ownership, valuation, dividends, earnings and profitability.

Institutional & Insider Ownership

76.9% of Universal Insurance shares are held by institutional investors. Comparatively, 85.1% of RLI shares are held by institutional investors. 10.5% of Universal Insurance shares are held by insiders. Comparatively, 6.1% of RLI shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Dividends

Universal Insurance pays an annual dividend of $0.56 per share and has a dividend yield of 1.9%. RLI pays an annual dividend of $0.84 per share and has a dividend yield of 1.3%. Universal Insurance pays out 23.9% of its earnings in the form of a dividend. RLI pays out 35.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Universal Insurance has raised its dividend for 41 consecutive years. Universal Insurance is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk and Volatility

Universal Insurance has a beta of 1.9, indicating that its stock price is 90% more volatile than the S&P 500. Comparatively, RLI has a beta of 1.26, indicating that its stock price is 26% more volatile than the S&P 500.

Valuation and Earnings

This table compares Universal Insurance and RLI’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Universal Insurance $685.29 million 1.46 $99.41 million $2.34 12.44
RLI $797.22 million 3.46 $105.02 million $2.37 26.39

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

Profitability

This table compares Universal Insurance and RLI’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Universal Insurance 11.55% 20.90% 6.30%
RLI 13.17% 8.21% 2.46%

Analyst Ratings

This is a summary of recent recommendations for Universal Insurance and RLI, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Universal Insurance 0 0 1 0 3.00
RLI 1 3 0 0 1.75

Universal Insurance currently has a consensus price target of $32.00, suggesting a potential upside of 9.97%. RLI has a consensus price target of $53.00, suggesting a potential downside of 15.25%. Given Universal Insurance’s stronger consensus rating and higher probable upside, analysts clearly believe Universal Insurance is more favorable than RLI.

Summary

Universal Insurance beats RLI on 10 of the 17 factors compared between the two stocks.

Universal Insurance Company Profile

Universal Insurance Holdings, Inc. (UVE) is a private personal residential homeowners insurance company in Florida. The Company performs substantially all aspects of insurance underwriting, policy issuance, general administration, and claims processing and settlement internally. The Company’s subsidiaries include Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC). UPCIC writes homeowners insurance policies in states, including Alabama, Delaware, Florida, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Michigan, Minnesota, North Carolina, Pennsylvania, South Carolina and Virginia. APPCIC writes homeowners and commercial residential insurance policies in Florida. The Company has developed a suite of applications that provide underwriting, policy and claim administration services, including billing, policy maintenance, inspections, refunds, commissions and data analysis.

RLI Company Profile

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).

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