On Mar 21, Zacks Investment Research upgraded Arch Capital Group Ltd. ACGL to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Arch Capital has been witnessing rising earnings estimates on the back of strong fourth-quarter 2014 results. Moreover, this property and casualty insurer delivered positive earnings surprises in the last four quarters with an average beat of 12.7%.
On Feb 10, Arch Capital reported operating income of $1.15 per share in the fourth quarter that outperformed the Zacks Consensus Estimate of $1.06 by 8.5% and also improved year over year by 2.7%. The impressive performance was largely backed by solid underwriting results in Insurance segment.
Net premiums written grew by 7.5% due to improvement in the insurance and mortgage businesses that more than offset a decline in reinsurance net writings.
During 2014, Arch Capital made a number of strategic alliances which helped the company to expand its global footprint. These included acquisition of Arch Mortgage Insurance Company in Jan 2014, which enabled the company to enter the U.S. mortgage insurance marketplace.
The takeover also made it possible for the company to serve banks and other lenders nationwide, including existing credit union customers. Additionally, the company acquired the mortgage insurance operating platform of PMI, and 100% of the capital stock of PMI Mortgage Assurance Co. The company’s solid liquidity cushions its expansion initiatives.
Arch Capital also strengthened its balance sheet as it exited 2014. Total assets increased 12.5% along with a 14.5% rise in book value and 14.6% improvement in the annualized return on equity. These help the company return more profit to its shareholders.
Riding on the strength of solid fourth-quarter performance Arch Capital has been witnessing a rise in the Zacks Consensus Estimate over the last 60 days. For 2015, the Zacks Consensus Estimate increased by 3.7% to $3.90 as 8 out of 11 estimates moved north. For 2016, it again rose 2% to $4.08 as 6 out of 11 estimates moved north. Long-term growth is targeted at 6.20%.
Other Stocks to Consider
Other property and casualty insurers that have the same Zacks Rank as Arch Capital are Allied World Assurance Company Holdings, AG AWH, AmTrust Financial Services, Inc. AFSI and Fidelity National Financial, Inc. FNF.
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