On Nov 12, Zacks Investment Research upgraded Amerisafe Inc. (AMSF) by a notch to a Zacks Rank #1 (Strong Buy) from a Zacks Rank #2 (Buy).
Why the Upgrade?
Amerisafe witnessed appreciation in earnings estimates on the back of a better growth outlook and underwriting experience. A steady improvement in underwriting experience is also indicative of higher premiums and disciplined expense management. Notably, expense, loss, combined and underwriting ratios improved in the first nine months of 2014.
Moreover, Amerisafe’s strong investment portfolio and incremental cash flows, along with favorable frequency trends and attractive pricing, raises optimism about management’s financial objective to produce ROE of at least 15% over the long term (from 11.3% at Sep 2014-end), while maintaining optimal operating leverage in its insurance subsidiaries.
Additionally, the company declared a second extraordinary cash dividend payout of $1.00 per share in Oct 2014,thereby raising investor confidence.
On Oct 29, Amerisafe reported third-quarter earnings per share (EPS) of 72 cents, which outshone the year-ago quarter by 33.3% and the Zacks Consensus Estimate by 10.8%. Additionally, this workers’ compensation insurer has delivered positive earnings surprises in three of the last four quarters, with an average beat of 19.6%.
Upward estimate revisions on the stock reflect optimism regarding its prospects. The Zacks Consensus Estimate for the 2014 and 2015 moved north by 1.6% and 1.0% to $2.61 and $3.10 per share, respectively, following the third-quarter earnings release. On a year-over-year basis, EPS is expected to escalate by about 10% in 2014 and 19% in 2015. With no downward estimate revision, this indicates a likely earnings beat for both the years.
Key Insurance Picks
Investors interested in the specialty insurance sector could consider players like Employers Holdings, Inc. (EIG), Navigators Group Inc. (NAVG) and Arch Capital Group Ltd. (ACGL). All these stocks have the same Zacks Rank as Amerisafe.
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