Palomar Holdings PLMR shares are trading at a premium to the Zacks Property and Casualty insurance industry. Its price-to-earnings of 4.58X is higher than the industry average of 1.5X.

With a capitalization of $3.4 billion, the average number of shares traded in the last three months was 0.2 million.  
 

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Shares of other insurers like Horace Mann Educators HMN, Lemonade LMND and Employers Holdings Inc. EIG are trading at a multiple lower than the industry average.

PLMR stock has gained 19.4% year to date, outperforming the industry, the sector and the Zacks S&P 500 composite’s return in the same time frame.

PLMR Stock vs Industry, Sector & S&P 500 YTD

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PLMR shares are trading above the 50-day moving average, indicating a bullish trend.

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Based on short-term price targets offered by six analysts, the Zacks average price target is $135.17 per share. The average indicates a potential 6% upside from the last closing price.

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PLMR Stock’s Favorable Return

Palomar’s trailing 12-month return on equity was 21.7%, which came ahead of the industry average of 8.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
 

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Also, the return on invested capital has been 18.9% over the trailing 12 months, outperforming the industry average of 6.3%. The company has raised its capital investment significantly, reflecting PLMR’s efficiency in utilizing funds to generate income.

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Upbeat Analyst Sentiments for Palomar Holdings

All six analysts covering the stock have raised estimates for 2025. Four of the five analysts have raised the same for 2026 over the past 30 days. The consensus estimate for 2024 and 2025 has moved 13.2% and 11%, respectively, in the past 30 days.

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Optimistic Growth Estimate

The Zacks Consensus Estimate for 2025 earnings is pegged at $6.71, implying a 31.8% year-over-year increase on 38.9% higher revenues of $762.9 million. The consensus estimate for 2026 is pegged at $7.95, indicating an 18.5% year-over-year increase on 25.6% higher revenues of $958.1 billion. 

Factors Favoring Palomar Stock

Palomar envisions being an industry leader in the crop business and among the top 10 crop premium riders in the United States by 2025. Its projections for the year exceed $200 million in premiums. It also believes that crops will secure $500 million of premiums in the intermediate future. 

Its premium, the primary source of revenues for insurers, is poised to gain from increased volume of policies written across the lines of business, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships.

Palomar noted that Surety is an attractive market segment. Like crop insurance, it is not correlated to the P&C cycle and thus has the potential to be an important growth driver for Palomar over the longer term. 

Net investment income is poised to benefit from high-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields. Though the Fed lowered the interest rate thrice in 2024 and is likely to implement two cuts in 2025, PLMR’s solid investment portfolio should help it generate strong net investment income.

Palomar’s fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

This insurer’s prudent underwriting expertise is reflected in its combined ratio, which has been under 95% since 2017, except in 2020. PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility. 

Palomar maintains a strong capital position and boasts a debt-free balance sheet. As part of wealth distribution to shareholders, PLMR engages in share buybacks.

Banking on operational strength, Palomar expects to generate adjusted net income between $180 million and $192 million in 2025.  

Conclusion

Palomar is poised to grow on the strength of its solid product portfolio as well as geographic expansion, appointment of new producers, strategic partnerships with other insurance carriers and rate increases.  

Palomar aims to be an industry leader in the crop business and its focus on Surety bodes well for growth.

To prevent erosion of profitability, PLMR utilizes reinsurance in order to limit its exposure to losses and enable it to underwrite policies with sufficient limits to meet policyholder needs. All these together instill confidence in this specialty insurer.

New business, strong premium retention rates for existing business and renewals of existing policies, better pricing and effective capital deployment are driving shares higher.

Thus, despite its premium valuation, this Zacks Rank #1 (Strong Buy) insurer is worth adding to an investor’s portfolio.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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Employers Holdings Inc (EIG) : Free Stock Analysis Report

Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report

Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report

Lemonade, Inc. (LMND) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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