News

Shares of Trupanion Inc TRUP closed at $47.21 on Tuesday, near its 52-week high of $48.85, after having gained 54.8% in the past three months. Shares outperformed the industry, the Finance sector as well as the Zacks S&P 500 composite index in the same time frame.

Banking on sustained revenue growth, margin expansion and operational expertise, the insurer delivered earnings surprise in each of the last four quarters.

TRUP Outperforms Industry, Sector and S&P 500

Image Source: Zacks Investment Research

Trupanion is a provider of insurance for cats and dogs in the United States, Canada, Continental Europe and Australia. It operates in a large but underpenetrated market. Trupanion noted less than 4% of pets are insured in the United States, Puerto Rico and Canada with same low number across most of Europe. With the change in the attitude of pet owners, who are increasingly focusing on pet health and well-being, TRUP has a strong chance to capitalize on the growth in a total addressable market worth $34.1 billion. The insurer envisions doubling its addressable market (defined by the number of veterinary hospitals) by the end of 2030.

TRUP’s Optimistic Projection

The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 65.7% on 14.8% higher revenues. The consensus estimate for 2025 earnings suggests an increase of 144.3% on 6.2% higher revenues. The expected long-term earnings growth rate is pegged at 40.4%, better than the industry average of 18.4%. It has a Growth Score of A.

TRUP projects revenues in the range of $1.263-$1.279 billion, up 14% from the 2023 level. Subscription revenues are projected between $850 million and $858 million, revised from $842 million and $862 million guided earlier. Total adjusted operating income is expected in the range of $108-$115 million, revised from $100-$120 million expected earlier.

Over the long term, TRUP remains focused on growing adjusted operating income and deploying increasing amounts at high internal rates of return. The pet insurer’s five-year plan includes a 15% adjusted operating margin.

Positive Analyst Sentiment Instills Confidence in TRUP

Two of the three analysts covering the stock have raised estimates for 2024 and 2025 over the past 30 days. The consensus estimate for 2024 loss has narrowed to 37 cents from 40 cents expected earlier, while the consensus estimate for 2025 is pegged at earnings of 6 cents per share, up from 2 cents expected earlier.

Factors Favoring Trupanion

Average monthly retention continues to remain strong, coupled with an increase in total enrolled subscription pets. The cost of veterinary care continues to rise, outpacing consumer discretionary income, as noted by management. The role of pricing thus plays an important part, both in keeping the growth pace alive and in comforting pet parents.

The insurer has also been expanding globally as part of its five-year growth plan, apart from strengthening its compelling portfolio. TRUP noticed increasing contributions from European endeavors. Given the underpenetrated market, it sees opportunities to enroll more pets with increasing acquisition spend.

To ramp up growth, it is introducing new products. Its portfolio of products comprising Chewy and Aflac, medium and low average monthly revenue per unit (ARPU) products Firkin and Phi Direct and products in continental Europe contributed 17% growth to gross new pet addition in the second quarter of 2024. TRUP intends to launch a Trupanion-branded product in Europe this year and is hopeful about its partnership with Aflac Incorporated AFL in the United States.

A sturdy capital position aided by operational strength supports investment in new product development and international expansion. Trupanion expects these investments to extend moat and expand the addressable market in the long run.

Concerns Regarding TRUP

Despite the upside potential, there are a few factors that investors should keep an eye on.

Though the insurer’s revenues are increasing and costs are declining, they are not sufficient to cover expenses, positioning the company to incur losses in the next few quarters.

Also, the leverage compares unfavorably with the industry average.

TRUP’s trailing 12-month ROE of -6.3% is worse when compared with the industry average of 16.2%, reflecting TRUP’s inefficiency in using shareholders' funds. Also, the return on invested capital in the trailing 12 months was -1.1%, comparing unfavorably with the industry average of 7.8%, reflecting the insurer’s inefficiency in utilizing funds to generate income.

TRUP’s Valuation

Valuation remains expensive at the current level. It is currently trading at a price-to-book multiple of 6.48, higher than the industry average of 1.85. As it is still incurring losses, potential investors might not want to pay a premium price.

MetLife Inc. MET, which also provides pet insurance, is trading at a multiple lower than the industry average.

Parting Thoughts

TRU’s focus on pet health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position poise it for growth. It envisions a total shareholder return of 20% with a revenue increase of 15% over the long term.

Given a premium valuation, expected losses in the near term and a negative return on capital, it is better to adopt a cautious stance for the Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thus, investors who already hold TRUP stock should retain it and new investors can wait for a better entry point, given its growth prospects.

Only $1 to See All Zacks' Buys and Sells

We're not kidding.

Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.

Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.

See Stocks Now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

MetLife, Inc. (MET) : Free Stock Analysis Report

Aflac Incorporated (AFL) : Free Stock Analysis Report

Trupanion, Inc. (TRUP) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.