On May 29, 2014, HCC Insurance Holdings Inc. (HCC) reached a new 52-week high of $47.25. The rally was attributable to the company’s strong first-quarter 2014 earnings, business strengthening capacities and efficient capital deployment activities.
HCC Insurance’s solid first-quarter 2014 results comprised an 8.05% positive earnings surprise. Notably, this property and casualty insurer beat earnings estimates in all the trailing four quarters with an average surprise of 17.2%.
The last reported quarter also marked the best first quarter in HCC Insurance’s history. Following HCC Insurance’s earnings release on Apr 29, 2014, its shares gained 3.5% to close at $47.07 in the last trading session. The one-year return of the stock was 10.81%, much above that of other players in the industry like Arch Capital Group Ltd. (ACGL) and Alleghany Corp. (Y) with returns of 9.05% and 6.76% respectively over the same period.
Additionally, increased premiums as well as improvement in combined ratio and capital deployment bode well. The company deployed $31.4 million toward share repurchases in the first quarter. The company’s regular payment of dividends continued in the 73rd quarterly dividend paid recently. In terms of financial position, HCC Insurance’s operating cash flow surged year over year in the first quarter of 2014. This should enable it to engage in more such endeavors.
Moreover, change in presentation of certain lines of businesses within the company’s existing segments and a change in management to expand the insurance platform in Apr 2014 position HCC Insurance for long-term growth. The launch of an employer benefits decision tool in May 2014 should also strengthen the company’s product portfolio, thereby making way for revenue generation.
Such business strengthening initiatives and capital deployment keep us optimistic about the stock’s performance. The full-year 2014 Zacks Consensus Estimate increased 3% to $3.73 after the company reported its first-quarter results, as most of the estimates moved north. During the same period, the estimates also pulled up the Zacks Consensus Estimate for full-year 2015 by 1.3% to $3.78 per share.
Currently, HCC Insurance caries a Zacks Rank #3 (Hold). Some better-ranked players in the same sector, which look attractive at current levels, include Arch Capital, Alleghany Corp and Endurance Specialty Holdings Ltd. (ENH). While Endurance Specialty sports a Zacks Rank #1 (Strong Buy), Arch Capital and Alleghany have a Zacks Rank #2 (Buy).
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