On Dec 13, we downgraded our recommendation on Everest Re Group Ltd. (RE) to Neutral from Outperform following third quarter earnings miss. The company reported a negative earnings surprise of 10.5%. The stock carries a Zacks Rank # 3 (Hold).
Why the Downgrade?
Everest Re’s third quarter 2013 operating earnings of $4.20 per share substantially missed the Zacks Consensus Estimate of $4.69 per share. Results were adversely affected by an increase in annualized effective tax rate as well as a lower net investment income. However, earnings improved 3.7% year over year.
The company has been suffering from declining investment income. The trend is expected to continue, in keeping with the low interest rate environment expected through 2014.
Everest Re’s results are also subject to volatility from cat losses. Cat losses has historically drained the bottom–line earnings and despite cat modeling deployed by the company, weather related losses are expected to hit earnings.
Nevertheless, the company boasts of a superior risk-adjusted capital position, long-term track record of generating favorable earnings, and market profile as a leading global provider of insurance and reinsurance products.
Everest Re is witnessing improving rates in its reinsurance and insurance lines of businesses.
Everest Re’s 10-year average combined ratio has remained below the breakeven levels which signify its underwriting profitability.
Other Stocks to Consider
Some better–ranked stock in the property and casualty industry include Alleghany Corp. (Y), Cincinnati Financial Corp. (CINF), and CNA Financial Corporation (CNA). All these carry Zacks Rank #1 (Strong Buy).
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