Primerica (PRI): Buy, Sell, or Hold Post Q1 Earnings?

Primerica trades at $281.69 per share and has stayed right on track with the overall market, gaining 8.8% over the last six months. At the same time, the S&P 500 has returned 8.9%.

Is now the time to buy PRI? Find out in our full research report, it’s free.

Why Does Primerica Spark Debate?

With a sales force of over 140,000 licensed representatives operating on an independent contractor model, Primerica (NYSE:PRI) provides term life insurance, investment products, and other financial services to middle-income households in the United States and Canada.

Two Positive Attributes:

1. Long-Term Revenue Growth Shows Momentum

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services.

Over the last five years, Primerica grew its revenue at a decent 7.7% compounded annual growth rate. Its growth was slightly above the average insurance company and shows its offerings resonate with customers.

2. Stellar ROE Showcases Lucrative Growth Opportunities

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Primerica has averaged an ROE of 28.2%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Primerica has a strong competitive moat.

One Reason to Be Careful:

Net Premiums Earned Point to Soft Demand

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.

Primerica’s net premiums earned has grown at a 3.2% annualized rate over the last two years, worse than the broader insurance industry and slower than its total revenue.

Final Judgment

Primerica has huge potential even though it has some open questions, but at $281.69 per share (or 3.2× forward P/B), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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