On Sep 27, 2014, Zacks Investment Research upgraded Fortegra Financial Corporation (FRF) by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Fortegra Financial has been experiencing upward estimate revisions on the back of improved financials and a deleveraged balance sheet. With the completion of the ‘go-shop’ period for the company, with respect to the merger agreement entered on Aug 12 with Tiptree Financial Inc. (TIPT), it will now likely give more clarity about the outcome of this deal worth $218 million.
While Fortegra Financial did not witness any competitive bidding during its ‘go-shop’ period that ended on Sep 10, Tiptree is an active acquirer of new businesses. The merger may also enhance Fortegra Financial’s growth potential in its area of operation. The deal is expected to close by the end of 2014 or early 2015, once the pending conditions are met and approvals received.
Fortegra Financial also delivered net income of 16 cents per share in the second quarter of 2014, which surpassed the Zacks Consensus Estimate by 33%, although earnings declined 27.3% year over year owing to the effect of discontinued operations in the year-ago quarter.
Additionally, this multi-line insurer outperformed the year-to-date S&P 500 index, which posed a growth of 7.3% against a return of 19.6% clocked by the company.
Fortegra Financial is also benefiting from organic revenue growth and controlled expenses. Lower member benefit claims as well as loss and loss adjustment expenses have also supported margins in the first half of 2014 as well as adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin outlook of 32–34% in 2014. A high single digit to-line growth projection also instils confidence.
Meanwhile, the Zacks Consensus Estimate for 2014 rose 8.8% to 78 cents per share in the last 60 days, while for 2015, it remained intact at 71 cents per share. No downward revision in estimates was witnessed for both the years.
Other Insurance Stock Picks
Investors interested in insurance sector could also consider stocks like AmTrust Financial Services Inc. (AFSI) and Navigators Group Inc. (NAVG). All these stocks carry the same Zacks Rank as Fortegra Financial.
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