Why Palomar Stock Was Up 10.7% This Week

What happened

Palomar (NASDAQ:PLMR) had a solid week, as its stock price was up by 10.7% as of Friday morning at 9:30 a.m. ET, according to S&P Global Market Intelligence. Palomar was trading at about $52.90 per share at the market open on Friday, up 17.1% year to date.

The market was sluggish this week as the S&P 500 was up 0.4%, the Dow Jones Industrial Average was down 0.1%, and the Nasdaq Composite gained 1% as of Friday at the opening bell.

So what

Palomar, a specialty insurance company, jumped this week after it announced the successful completion of several reinsurance programs on June 1. At the same time, the company boosted its net income guidance for 2023.

Specifically, its reinsurance coverage now exhausts at $2.68 billion for earthquake events, $900 million for hurricane events on Hawaii, and $100 million for all continental United States hurricane events.

Also, Palomar purchased roughly $550 million of reinsurance limit to support the growth of its earthquake franchise this year, with $200 million of the limit sourced through a new catastrophe bond.

"In what most have deemed the hardest reinsurance market in thirty years, we successfully completed our June 1 renewal," Mac Armstrong, Palomar's chairman and CEO, said.

Armstrong added this has allowed the company to raise its full-year 2023 adjusted net income guidance to a range of $88 million to $92 million. That is up from a previous estimate of $86 million to $90 million.

Now what

Palomar is currently trading at around $53 per share, which is up 17% year to date. Analysts at Keefe, Bruyette & Woods raised their price target from $64 to $67 per share on the news -- which would be another 26% increase for the stock.

Palomarʻs valuation has come down in recent months, with a price-to-earnings ratio of 23.8, down from 27.2 at the end of the first quarter and from 38.4 at the end of the second quarter of 2022.

The company has carved out a successful niche in underserved areas of the competitive reinsurance space, focusing on earthquakes, hurricanes, and floods. It is a growing area of the market, but also comes with its share of risk.

The stock price has been volatile over the past couple of years, but it is at a lower valuation right now, so investors interested in this space might want to give it a look.

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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.