On Aug 28, 2013, Zacks Investment Research downgraded White Mountains Insurance Group Ltd. (WTM) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Earnings estimates for White Mountains have been trending down owing to dismal second-quarter 2013 results and a reduced investment portfolio. The company reported second-quarter results with a negative earnings surprise of 19.9%. Additionally, this property-casualty insurer and reinsurer underperformed the year-to-date S&P 500 index, which posed a growth of 16.6% against White Mountains’ 9.3%.
On Jul 31, White Mountains reported second-quarter operating earnings per share of $3.62, which lagged both the Zacks Consensus Estimate and year-ago figure of $4.52 and $3.85, respectively.
The downside was due to 9.58% decline in top line, led by lower premiums, investment income and higher capital losses. Although total expenses dipped 3.8% from the prior-year quarter, loss and loss adjusted as well as underwriting expenses were still high. Consequently, book value depreciated 1.9% year over year to $597.29 per share.
White Mountains has been facing operating challenges thus far in 2013. Fluctuations in currencies and equity markets have taken a toll on the investment portfolio. Moreover, higher underwriting and loss adjusted expenses amid weak premiums and reserves are weakening the operating leverage. Depreciated asset base, cash and equity pose additional financial risks, which are also making the investors jittery.
While the Zacks Consensus Estimate for 2013 edged up 1.9% to $24.10 per share in the last 30 days, it is still 34.4% lower than 2012. Moreover, the estimate for 2014 is pegged at $23.55, down 9.4% in the last 30 days and 2.3% from 2013. Meanwhile, no upward revision in estimates was witnessed for 2014, although one firm raised estimate for 2013.
Other Stocks to Consider
While we prefer to avoid White Mountains at present, other stocks that are outperforming in the insurance sector include Everest Re (RE), HCI Group Inc. (HCI) and EMC Insurance Group Inc. (EMCI). All these stocks carry a Zacks Rank #1 (Strong Buy).
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