MCY

We rate MERCURY GENERAL CORP (MCY) as a Reduce with a composite score of 45.7/100 at a current price of $85.74. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in momentum (70th percentile) and value (57th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (28th percentile) and investment (37th percentile) tempers our overall conviction. We assign a Narrow Moat rating (61/100), Low uncertainty, and Standard capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

MERCURY GENERAL CORP holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.7/100 places it at rank #2683 in our full 7,333-stock universe. At $4.7B in market capitalization, MERCURY GENERAL CORP is a mid-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

The near-term outlook is constructive, with revenue growing at 21% and momentum in the 70th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 37th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 100% (+23.3pp vs sector) narrow to operating margins of 11% (-5.9pp vs sector) and net margins of 9.1%, yielding a gross-to-net conversion rate of 9%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $85.74, MERCURY GENERAL CORP is trading near fair value based on current fundamentals. Our value factor score of 57/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 8.4x (a 30% discount to the sector median of 11.9x), EV/EBITDA of 7.6x (near the sector median), P/B of 2.0x, P/S of 0.8x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to MERCURY GENERAL CORP. The company exhibits strong financial stability with a beta of 0.59, conservative leverage (24% D/E), and a stability factor in the 53th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: weak quality scores (28th percentile); low beta of 0.59 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 53th percentile and quality factor at the 28th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 100% provide a buffer against cost pressures; conservative leverage (24% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate MERCURY GENERAL CORP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 23.6%, and the balance sheet is managed within acceptable parameters (D/E: 24%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; MERCURY GENERAL CORP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 1.50% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, MERCURY GENERAL CORP receives a Reduce rating with a composite score of 45.7/100 (rank #2683 of 7,333). Our quantitative framework assigns a Narrow Moat (61/100, trend: stable), Low uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 49/100.

Our analysis does not support a constructive view on MERCURY GENERAL CORP at this time. The combination of the current quantitative profile, low uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.