Palomar stock price target lowered to $151 by Piper Sandler on expense ratio concerns

Palomar Holdings (PLMR) reported strong Q2 2025 results, surpassing EPS and revenue estimates, and raised guidance while initiating a share repurchase program. Despite the earnings beat, Piper Sandler lowered its price target to $151 from $177 due to higher-than-expected underwriting expenses, contributing to a 14% stock decline. However, Piper Sandler maintained an Overweight rating, viewing the post-earnings sell-off as an opportunity given PLMR's robust fundamentals, including a 22% return on equity and anticipated 20%+ growth, which contrast favorably with its current valuation at approximately 13 times forward earnings.

Analysis

Palomar Holdings (PLMR) presents a case of significant market dislocation following its second-quarter 2025 earnings report. Despite surpassing analyst expectations with an EPS of $1.76 against a $1.68 consensus and revenues of $496.3 million beating projections by 8.1%, the stock declined 14% over the past week. The negative sentiment was primarily driven by underwriting results falling short due to a higher-than-anticipated expense ratio. However, Piper Sandler characterizes this as a temporary, quarter-specific timing issue related to the reporting of crop insurance, not a fundamental flaw in the business model. This view is supported by the company's own actions, which include raising guidance for the second consecutive quarter and initiating a new share repurchase program, signaling strong internal confidence. Furthermore, the company's fundamentals remain robust, evidenced by a 53% revenue growth over the last twelve months and a high return on equity of 22%. The sell-off has pushed the stock into oversold territory according to RSI indicators and created a valuation disconnect; PLMR now trades at approximately 13 times forward earnings, a multiple more aligned with low-growth insurers, while Palomar is expected to deliver growth and ROE metrics both exceeding 20%.

Key Decisions for Investors

• The recent 14% share price decline presents a potential valuation opportunity, as the stock now trades at a significant discount to its growth prospects, with a forward P/E of 13x despite management guiding for over 20% growth and ROE.
• Investors should closely monitor the company's expense and combined ratios in the next earnings report to validate the thesis that the recent underwriting underperformance was a temporary timing issue rather than a new trend.
• Management's decision to raise guidance for the second consecutive quarter and authorize a new share buyback program serves as a strong confidence signal that could provide a floor for the stock and act as a catalyst for recovery.
• Given that technical indicators suggest the stock is in oversold territory, investors may consider the current price level an attractive entry point, aligning with the fundamental argument that the sell-off was overdone.