With a market cap of $36 billion, Arch Capital Group Ltd. (ACGL) is a global provider of insurance, reinsurance, and mortgage insurance solutions, offering a comprehensive range of property, casualty, and specialty coverages. Based in Pembroke, Bermuda, it serves clients worldwide through a network of licensed brokers and subsidiaries.

Shares of the property and casualty insurer have underperformed the broader market over the past 52 weeks. ACGL has increased 14.5% over this time frame, while the broader S&P 500 Index ($SPX) has rallied 31.1%. However, in 2024, shares of ACGL are up 32.8%, outperforming SPX’s 24.7% gain on a YTD basis. 

In addition, ACGL has lagged behind the Financial Select Sector SPDR Fund’s (XLF) 42.8% return over the past 52 weeks and 33.4% return on a YTD basis.

Despite reporting better-than-expected Q3 adjusted revenue of $4.4 billion and EPS of $1.99 on Oct. 30, shares of Arch Capital dipped 6.3% the next day due to a sharp 25.4% year-over-year decline in underwriting income, primarily driven by $450 million in pre-tax catastrophic losses from Hurricane Helene, which exceeded prior-year levels significantly. The combined ratio deteriorated across all segments, particularly in Reinsurance and Mortgage, highlighting profitability challenges despite premium growth. Additionally, investor sentiment was dampened by a 1000 bps contraction in annualized operating return on equity and concerns about the sustainability of earnings amid higher catastrophe exposure.

For the current fiscal year, ending in December, analysts expect ACGL’s EPS to grow 6.6% year-over-year to $9.01. The company’s earnings surprise history is promising. It beat the consensus estimates in the last four quarters. 

Among the 18 analysts covering the stock, the consensus rating is a “Moderate Buy.” That’s based on 10 “Strong Buy” ratings, two “Moderate Buys,” five “Holds,” and one “Strong Sell.”

On Nov. 19, Wells Fargo lowered Arch Capital's price target to $109 and maintained an “Overweight" rating while updating estimates following the special dividend and Milton loss for Q4.

As of writing, ACGL is trading below the mean price target of $119.53. The Street-high price target of $141 implies a potential upside of 43% from the current price levels.