On Oct 8, 2014, shares of Federated National Holding Company (FNHC) scaled a 52-week high of $30.57 on the back of positive tidings. With about 0.3 million shares exchanging hands in the last trading session, the stock closed at $30.41, gaining 4.4%.
The year-to-date return of Federated National was 107.3%, ahead of the Nasdaq’s return of 7.0%.
Recently, Federated National issued 2.4 million shares for $43.4 million to support its growth initiatives. Though share outstanding will increase, we believe the company’s solid operational performance will mitigate the dilutive effect.
With a noble intention of sharing profits with shareholders, the board of directors declared a quarterly dividend of 3 cents a share, presently yielding 0.89%. The company’s dividend has grown at a 5-year CAGR of 1.82%.
Moreover, in July, Federated National entered into a joint venture with C.A. Bancorp Inc. to form Monarch National Insurance Company, thereby strengthening its presence in Florida. With a significant stake in the new company, Federated National will also be overseeing its general agent and claims administration services.
With respect to earnings performance, Federated National delivered positive surprises in the last three quarters with an average beat of 80.1%. In the last reported quarter, it posted a net income of $1.01 per share that surpassed the Zacks Consensus Estimate by 71.2% and was significantly higher than the year-ago quarter figure. The improvement came on the back of solid net premiums earned, increased revenues and growth in Florida homeowners' policy.
Federated National top line also surpassed the Zacks Consensus Estimate and improved year over year by 100% on the back of increase in net premiums earned, commission income, finance revenues, direct written policy fees, net investment income, net realized investment gains and other income.
Federated National’s strong performance prompted upward revisions in the Zacks Consensus Estimate, which rose 7.4% to $2.19 for 2014 and 3.6% to $2.21 for 2015, over last 60 days. The expected long-term growth rate for the stock is 20%.
Currently, Federated National has a Zacks Rank #3 (Hold). However, better-ranked stocks in the same industry that are worth reckoning include Navigators Group Inc. (NAVG), Platinum Underwriters Holdings Ltd. (PTP) and RLI Corp. (RLI). All these sport a Zacks Rank #1 (Strong Buy).
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