On Jan 17, Zacks Investment Research upgraded AmTrust Financial Services Inc. (AFSI) by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
AmTrust has been experiencing rising earnings estimates on the back of better market trends following the recent approval of its first stock repurchase program since 2007 and improved agency acquisitions.
Earlier this month, the company acquired Insco Dico Group, while it purchased Sagicor Europe Ltd. last month. These acquisitions are expected to be accretive to AmTrust’s earnings in 2014 and beyond.
Last week, the company also announced its intention to buy the renewal rights and assets of the commercial lines insurance operations of Tower Group International Inc. (TWGP) for about $125 million. The deal is likely to culminate by mid-2014, upon receipt of regulatory approvals. Moreover, strong capitalization and financial strength reflected by a strong ratings upgrade by A.M. Best are deemed impressive.
Earnings Rationale
Additionally, this specialty property-casualty insurer delivered positive earnings surprises in the last 4 quarters with an average beat of 11.7%. On Nov 5, AmTrust reported third-quarter 2013 operating earnings per share of 83 cents, which outpaced both the Zacks Consensus Estimate of 74 cents and the year-ago quarter number of 64 cents.
Robust year-over-year growth of 58.4% in net earned premiums along with a 58.8% surge in commission and other revenues boosted the top line, margins and bottom line. Despite higher underwriting and acquisition expenses, combined ratio witnessed improvement. Moreover, capital position remained sturdy with appreciated cash position, book value per share and return on equity (ROE).
AmTrust’s creditworthiness, prudent risk management, diversified product portfolio and effective capital deployment score well with the ratings agencies and investors.
Based on AmTrust’s fundamental strength and prudent capital management, the Zacks Consensus Estimate for 2013 rose 2.9% to $3.19 per share in the last 60 days. Meanwhile, the estimate for 2014 grew 5.1% to $3.72 during the same period.
Moreover, the Most Accurate Estimate for AmTrust’s 2014 earnings stands at $3.89 a share, resulting in an Earnings ESP of +4.6%. Furthermore, no downward revision in estimates was witnessed for both the years.
Other Stocks to Consider
Besides AmTrust, other top-ranked insurers in the industry include Allied World Assurance Co. Holdings AG (AWH) and Endurance Specialty Holdings Inc. (ENH). Both these stocks carry a Zacks Rank #1 (Strong Buy).
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