We are reiterating our Outperform recommendation on the shares of The Chubb Corp. (CB), following the first quarter earnings results. Chubb reported a solid first quarter which included a 23% positive earnings surprise. Over the past four quarters this property and casualty insurer delivered an average positive surprise of 52%.
Why reiteration?
On April 24, Chubb reported first-quarter operating earnings of $566 million or $2.14 per share, significantly ahead of the Zacks Consensus Estimate of $1.74 per share. Earnings also increased 26% year over year from $469 million or $1.70 per share in the first quarter of 2012. The earnings increase came on the back of higher premium which was up across all the business segments.
Chubb has been witnessing rising earnings estimates. Over the last 60 days, most of the estimates moved north, pushing the Zacks Consensus Estimate for 2013 by 7.9% to $7.07. The same for 2014 rose 2% to $6.94 as 7 of 15 estimates were raised over the same time frame. The expected long term earnings growth is 9.7%.
Chubb is continuously witnessing improving business conditions in Commercial and Personal lines insurance business. It is experiencing a favorable rate increase along with a stable retention rate.
Chubb’s international business is also performing strongly and is an arsenal to its future growth.
A strong capital management witnessed by regular share repurchases and a continuous dividend increase for the past several years makes the stock a favorite among investors.
However, exposure to cat losses and low interest rate environment are some of the headwinds.
Other Stocks to Consider
Besides Chubb, HCI Group Inc. (HCI), AXIS Capital Holdings Ltd. (AXS) and Montpelier Re Holdings Ltd. (MRH) carry favorable Zacks Rank #1 (Strong Buy) and look impressive.
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