On Mar 24, 2015, Zacks Investment Research upgraded Old Republic International Corp. ORI by a notch to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell).
Why the Upgrade?
Old Republic has been witnessing stagnancy inearnings estimates ever since it reported fourth-quarter 2014 results on Jan 22. Even the 1.4% dividend hike, announced last month and paid last week, failed to stir the estimates, although it helped maintain the shareholders’ confidence.
Old Republic has a strong history of efficient capital deployment. The latest dividend is the 34th consecutive year of dividend increase, also marking the 74th year of continual cash dividend payouts.An appreciated book value, cash position and asset base equally augur optimism, paving the way for accelerated capital deployment in the future.
However, this general and title insurer delivered negative earnings surprises in two of the four quarters, the average miss being 2.8%. Its fourth-quarter 2014 operating earnings per share of 21 cents also lagged the Zacks Consensus Estimate by 16% and the year-ago quarter figure by 36%.
Top-line growth of 2.7% was mostly offset by a 7.9% rise in total expenses. Notably, benefits and claims jumped 16.1% in fourth quarter. Consequently, operating income declined by about 42%, while operating cash outflow surged to $181.2 million at 2014-end against an inflow of $686.7 million at 2013-end, primarily due to the RFIG run-off business. A deteriorated financial leverage of 19.7% at 2014-end, up from 13.1% at 2013-end also raise caution.
Overall, Old Republic appears to be in neutral lane currently. This is also evident from the Zacks Consensus Estimate for 2015 and 2016 that remained intact at $1.01 and $1.03 per share, respectively, in the last 90 days.
Key Sector Picks
Investors interested in the insurance industry could consider better-ranked stocks likeCigna Corp. CI, FBL Financial Group Inc. FFG and James River Group Holdings Ltd. JRVR. All these stocks carry a Zacks Rank #2 (Buy).
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