Amerisafe Upped to Strong Buy on Solid Growth Outlook

Zacks

On Dec 24, 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 an uptrend in earnings estimates on the back of a consistent growth performance throughout 2014, which also indicate a brighter outlook for 2015. The company’s steadily improving underwriting results reflect prudent risk management and relentless focus to capitalize on the opportunities that the markets offer on stability.Notably, expense, loss, combined and underwriting ratios improved throughout 2014.

Amerisafe’s strong position in the niche hazardous workers' compensation insurance as well as the improved pricing and current stability in employment trends are the added positives for the company. Incremental cash flows and capital deployment through higher dividends, including an extraordinary cash dividend payout of $1.00 per share in Oct 2014, score well with investors as well as ratings agencies.

Additionally, this workers’ compensation insurer has delivered positive earnings surprises in three of the last four quarters, with an average beat of 19.6%. The company’s third-quarter earnings per share (EPS) of 72 cents outshone the year-ago quarter by 33.3% and the Zacks Consensus Estimate by 10.8%.

Upward estimate revisions reflect optimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2014 and 2015 moved north by 3.1% and 1.6% to $2.69 and $3.15 per share, respectively, over the last 60 days. On a year-over-year basis, EPS is expected to surge by about 13.5% in 2014 and 17.1% in 2015. With no downward estimate revision, this indicates a likely earnings beat for both the years.

Going forward, we believe consistent cost control, healthy underwriting and secure investment portfolio will continue to boost Amerisafe’s earnings potential and capital position.

Key Insurance Picks

Investors interested in the specialty insurance sector could consider players like Selective Insurance Group Inc. (SIGI), Employers Holdings, Inc. (EIG) and Navigators Group Inc. (NAVG). All these stocks sport the same Zacks Rank as Amerisafe.

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