On Aug 27, 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 witnessing rising earnings estimates on the back of robust second-quarter 2014 results, which reflected consistent improvement in core growth.
The company’s fundamental strength and prudent capital management also augur optimism. Accordingly, the Zacks Consensus Estimate for 2014 and 2015 moved north by 4.7% and 2.4% to $4.69 and $5.08 per share, respectively, in the last 30 days.
Moreover, the Most Accurate estimate for AmTrust’s 2014 and 2015 earnings stand at $4.88 and $5.28 a share, resulting in an Earnings ESP of +4.1% and +3.9%, respectively. This indicates a likely earnings beat for both the years. Notably, no downward estimate revision was witnessed for these years.
Meanwhile, steady and significant organic growth, diversified product portfolio and healthy capital position have also been fuelling improved market trends. Subsequently, this specialty property-casualty insurer outperformed the year-to-date Nasdaq index that had projected growth of 10.0%, by yielding a return of 37.5%.
Core Growth Steady
AmTrust has maintained its earnings streak in the last four quarters with an average beat of 26.7%. On Aug 7, the company reported second-quarter 2014 operating earnings per share of $1.34, which outpaced the Zacks Consensus Estimate by about 33% and the year-ago quarter figure by 79%.
The year-over-year top-line growth of 56% stemmed from an increase of 58% in net earned premiums, 50% ascent in service and fee income and 44% growth in investment income. Despite higher underwriting and acquisition expenses, expense ratio and margins witnessed improvement. Notably, combined ratio improved 120 basis points (bps) year over year to 90.9%.
Moreover, AmTrust exercises disciplined risk and debt management, which is reflected by its long-term leverage that improved by 33 bps from 2013-end to 24.7% at Jun 2014-end. An appreciated cash position and book value per share along with a return on equity (ROE) of 28% paves the way for accelerated capital deployment. These factors further boost the confidence of investors and ratings agencies.
Other Insurers That Warrant a Look
Investors interested in the insurance industry could also consider stocks likeNational General Holdings Corp. (NGHC), Mercury General Corp. (MCY) and Endurance Specialty Holdings Ltd. (ENH). All these stocks sport the same Zacks Rank as AmTrust.
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