Don't Overlook Hidden Gem Kinsale As Rallies To New Highs

Key Points

• Insurance and reinsurance specialist Kinsale Capital Group reported strong Q1 results, with a 50% increase in EPS and a 42% increase in revenue year-over-year.
• Analysts expect Kinsale to report significant gains in the second quarter of 2023 compared to the same period in 2022.
• Kinsale's stock surged 12.07% in the past week and has a year-to-date return of 31.70%.
• The company's earnings have beaten top and bottom line views in each of the past three quarters.
• Wall Street projects a 30% increase in net income for Kinsale this year and an 18% increase next year.

Many investors might not get too excited about the insurance business. Still, it’s probably worth a reminder that insurance float is a big factor behind the success of Warren Buffett and Berkshire Hathaway Inc. NYSE: BRK.B.

If that convinces you to take another look at an industry that most consumers view as a necessary evil, then check out the Kinsale Capital Group Inc. NYSE: KNSL chart. The stock is up 12.07% in the past week, tacking on more upside trade to prior gains for a year-to-date return of 31.70%.

The stock is trading at new highs. 

Kinsale Capital Group is a Virginia-based company specializing in insurance and reinsurance solutions. As an underwriting business, its primary focus is coverage for risks that are unusual or hard to place in the traditional insurance market. Those include newly established companies or industries, high-risk operations, insureds in litigious venues, or companies with poor loss histories.

When it comes to its competitive advantage, the company says, “We believe our systems and technology are at the digital forefront of the insurance industry and allow us to quickly collect and analyze data, thereby improving our ability to manage our business and reduce our response times for our customers.” 

Kinsale also emphasizes expense management as one of its advantages. 

Double-Digit Year-Over-Year Increases

The company reported its first quarter on April 27, earning $2.44 a share on revenue of $256.9 million. Those represented year-over-year increases of 50% and 42%, respectively.

Kinsale Capital Group earnings data show the company beating top and bottom line views in the past three quarters. 

Earnings have grown every year since 2018. This year, Wall Street expects Kinsale to report net income of $10.11 per share, a gain of 30%. That’s expected to increase by 18% next year to $11.98 per share. 

When the company next reports earnings in late July, analysts forecast $2.50 per share on revenue of $274.42 million. As you may have guessed from the expected sizeable yearly gain, those would mark significant improvements over the second quarter of 2022. 

Under The Radar Stock

Kinsale Capital Group analyst ratings show a “moderate buy” consensus view on the stock. 

With a market capitalization shy of $8.2 billion, Kinsale is an excellent example of a small-ish stock that flies under the radar. That’s due to its size and the fact that, quite frankly, analysts have more fun covering glamorous Silicon Valley techs than an insurance company in Richmond, Virginia. 

Only a handful of analysts cover the stock, which can be good for individual investors. Stocks with sparse information available are often harder to value. 

Institutions Are Buying

Nonetheless, Kinsale Capital Group institutional ownership data shows the buyers are in charge. A total of 266 buyers accounted for $1.29 billion in inflows in the past 12 months, versus 167 institutional sellers accounting for $543.41 million in outflows. 

Kinsale is a component of the SPDR S&P MidCap 400 ETF Trust NYSEARCA: MDY. Kinsale is outperforming that benchmark over several recent rolling time frames. 

The mid-cap financial sector consists of several regional banks, which have weighed down performance year-to-date. However, it also tracks other insurance companies, such as American Ginancial Group Inc. NYSE: AFG, whose performance lags Kinsale. 

Kinsale says its primary competitors in the “difficult to place” insurance market include Arch Capital Group, Ltd., NASDAQ: ACGL, Argo Group International Holdings, Ltd. NYSE: ARGO, James River Group Holdings, Ltd. NASDAQ: JRVR, Lloyds of London, Markel Corporation NYSE: MKL, RLI Corp. NYSE: RLI and W. R. Berkley Corporation NYSE: WRB.

Gradually Marching Higher

Since late 2020, Kinsale shares have formed a series of consolidations with higher highs and higher lows as the stock gradually marched higher. There hasn’t been a true shakeout since 2021 when the stock undercut prior structure lows. 

It hasn’t been the prettiest or most consistent uptrend, but Kinsale stock has been on a well-defined upward trajectory since October 2021. 

The stock cleared its most recent consolidation, with a buy point north of $345.75, on June 6. Trading volume has been heavier than normal since June 1, suggesting at least one institutional buyer is loading up on shares.