On Apr 17, 2014, Zacks Investment Research downgraded Fortegra Financial Corporation (FRF) by a notch to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Fortegra Financial has been experiencing downward estimate revisions on the back of sluggish fourth-quarter 2013 results and a slack top line guidance. The company also delivered negative earnings surprises in 3 of the last 4 quarters with an average miss of 15.4%.
Additionally, this multi-line insurer underperformed the one-year S&P 500 index, which posed a growth of 17.2% against a negative return of 18.1% clocked by the company.
On Mar 10, Fortegra Financial reported fourth-quarter 2013 operating earnings per share of 17 cents, which significantly lagged both the Zacks Consensus Estimate and the prior-year quarter figure by 26% and 10%, respectively.
Top-line growth of about 45% was substantially offset by higher-than-expected operating expenses that spiked 32%, marring the desired upside. Consequently, adjusted EBITDA margin shrunk 510 basis points to 33.9%.
Further, with the divestments of its subsidiaries — Bliss & Glennon (B&G) and eReinsure to AmWINS Group Inc. — in Dec 2013, Fortegra Financial lacks any major growth catalyst going forward. While the company is banking on the exit of a major competitor in the payment protection market, this is yet to translate in to tangible growth.
The downsides are also evident from management’s top-line growth guidance of 7—9% in 2014, noticeably down from over 35% growth generated in 2013. As well, EBITDA margin is expected to remain flat with 2013-levels. Overall, weak fundamental growth prospects amid regulatory challenges and sluggish market conditions have been failing to signal any positive investor sentiment at the moment.
Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 plunged 11.2% and 13.5% to 79 cents and 83 cents per share, respectively, in the last 30 days. No upward revision in estimates was witnessed for both the years.
Moreover, the Most Accurate estimate for Fortegra Financial’s 2014 earnings currently stand at 73 cents a share, resulting in an Earnings ESP of -7.60%, and reflecting slow growth momentum.
Other Worthy Insurers
While we prefer to avoid Fortegra Financial for the time being, some better-ranked insurers such as FBL Financial Group Inc. (FFG), Primerica Inc. (PRI) and Prudential Plc (PUK) are worth considering. All these stocks carry a Zacks Rank #2 (Buy).
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