Financial Analysis: Sompo (OTCMKTS:SMPNY) and RLI (NYSE:RLI)

RLI (NYSE:RLI) and Sompo (OTCMKTS:SMPNY) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their analyst recommendations, risk, institutional ownership, profitability, earnings, dividends and valuation.

Valuation & Earnings

This table compares RLI and Sompo”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
RLI	$1.88 billion	2.96	$403.34 million	$4.76	12.74
Sompo	$35.69 billion	1.16	$4.22 billion	$2.54	8.72

Sompo has higher revenue and earnings than RLI. Sompo is trading at a lower price-to-earnings ratio than RLI, indicating that it is currently the more affordable of the two stocks.

Dividends

RLI pays an annual dividend of $0.72 per share and has a dividend yield of 1.2%. Sompo pays an annual dividend of $0.28 per share and has a dividend yield of 1.3%. RLI pays out 15.1% of its earnings in the form of a dividend. Sompo pays out 11.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. RLI has increased its dividend for 51 consecutive years. Sompo is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares RLI and Sompo’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
RLI	22.22%	17.61%	5.03%
Sompo	12.35%	13.69%	4.01%

Analyst Ratings

This is a breakdown of recent recommendations for RLI and Sompo, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
RLI	2	4	1	0	1.86
Sompo	0	1	0	0	2.00

RLI presently has a consensus target price of $63.20, suggesting a potential upside of 4.18%. Given RLI’s higher probable upside, equities research analysts plainly believe RLI is more favorable than Sompo.

Institutional & Insider Ownership

77.9% of RLI shares are held by institutional investors. 2.4% of RLI shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Volatility and Risk

RLI has a beta of 0.38, suggesting that its stock price is 62% less volatile than the S&P 500. Comparatively, Sompo has a beta of 0.29, suggesting that its stock price is 71% less volatile than the S&P 500.

Summary

RLI beats Sompo on 12 of the 17 factors compared between the two stocks.

About RLI

RLI Corp., an insurance holding company, underwrites property and casualty insurance. Its Casualty segment provides commercial and personal coverage products; and general liability products, such as coverage for third-party liability of commercial insureds, including manufacturers, contractors, apartments, and mercantile. It also offers coverages for security guards and environmental liability for underground storage tanks, contractors and asbestos, and environmental remediation specialists; and professional liability coverages for errors and omission coverage for small to medium-sized design, technical, computer, and miscellaneous professionals. This segment provides commercial automobile liability and physical damage insurance to local, intermediate and long haul truckers, public transportation entities, and other types of specialty commercial automobile risks; incidental and related insurance coverages; inland marine coverages; management liability coverages, such as directors and officers liability insurance, fiduciary liability and coverages, employment practice liability, and for various classes of risks, including public and private businesses; and home business insurance products. The company's Property segment offers commercial property, cargo, hull, protection and indemnity, marine liability, inland marine, homeowners' and dwelling fire, and other property insurance products. Its Surety segment offers commercial surety bonds for medium to large-sized businesses; small bonds for businesses and individuals; and bonds for small to medium-sized contractors. The company also engages in various reinsurance coverages. It markets its products through branch offices, wholesale and retail brokers, carrier partners, and underwriting and independent agents. RLI Corp. was incorporated in 1965 and is headquartered in Peoria, Illinois.

About Sompo

Sompo Holdings, Inc. provides property and casualty (P&C) insurance services in Japan and internationally. The company operates through Domestic P&C Insurance Business, Overseas Insurance Business, Domestic Life Insurance Business, and Nursing Care & Seniors Business segments. It offers various P&C insurance products, including automobile, fire, personal accident, and marine, as well as security, risk management, assistance, and warranty services; and life insurance products. The company also provides nursing care and seniors services; and customer security, health, and wellbeing support services. In addition, it offers asset management services; home remodeling services; and health support services comprising health guidance and employee assistance programs. The company was formerly known as Sompo Japan Nipponkoa Holdings, Inc. and changed its name to Sompo Holdings, Inc. in October 2016. The company was incorporated in 2010 and is headquartered in Tokyo, Japan.