The Navigators Group, Inc. NAVG recently announced its decision to go for a two-for-one stock split of common stock as a stock dividend. Shareholders on record as of Dec 30, 2016 will get an additional share for each share held. The new shares will be provided on Jan 20, 2017. Shares gained about 1.95% in the trading session on Dec 6, to finally close at $109.65.
Shares of Navigators Group have been consistently trading above $80 for more than a year. In fact, the stock has started to trade above $100 since Nov 10. Year to date, the stock has gained 27.8%, outperforming the Zacks categorized Property, Casualty and Title Insurance industry’s gain of 18.2%. Notably, the share price will be slashed by 50% post spilt. President and Chief Executive Officer Stanley A. Galanski stated, “In light of our continuing strong operating performance and the stock price appreciation over the last three years, we felt it was an appropriate time to implement a stock split.” Also, the company started paying quarterly dividends to its shareholders from Jul 2016. Collectively, these will make Navigators Group an attractive pick for yield seeking investors.
Stock split increases the number of outstanding shares of a company without changing its market capitalization. A higher number of shares outstanding translate to lower stock price, making it affordable for shareholders. Strong fundamentals and favorable industry trends make shares dearer as they trade at a premium. Following a stock split, value of the shares fall, which in turn, increase a stock's liquidity.
On the other hand, increase in the number of shares outstanding lowers earnings per share but stakeholders interest in the company remains unchanged. Post split, Navigators Group’s shares outstanding will increase to about 29.6 million shares from about 14.8 million shares outstanding before the split.
Navigators Group currently has Zacks Rank #4 (Sell). The estimates have also been witnessing downward revision over the last few weeks. Nonetheless, the company’s operational strength has been enabling it to generate higher revenues and has been facilitating margin expansion over the past many years.
Valuation too looks reasonable. The shares are still underpriced with P/E ratio of 21.7, a 23% discount to the industry average of 28.1. Its P/B ratio of 1.4 is in line with the industry average of 1.35.
Also, Navigators carries a VGM score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Our research shows that stocks with Style Scores of ‘A’ or ‘B,’ when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
The expected long-term earnings growth for the company is pegged at 8%. Price earnings growth ratio, which determines the relative trade-off between the price of a stock, earnings per share, and the company's expected growth, is 2.80. The industry average is 2.00.
Stocks to Consider
Some better-ranked insurers are Alleghany Corporation Y, First American Financial Corporation FAF and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany Corporation deals with property & casualty reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters, with an average beat of 20.52%.
First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. It outpaced estimates in all the trailing four quarters with an average beat of 14.32%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarters, with an average beat of 9.27%.
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