On Aug 25, 2014, we issued an updated research report on
The company delivered operating earnings of $2.42 per share,
surpassing the Zacks Consensus Estimate by 7.1% and improving 5.7%
year over year. Solid underwriting performances coupled with
improved investment results led to the outperformance. Premium
revenue witnessed global improvement.
With respect to earnings trend, the Zacks Rank #3 (Hold) property
and casuty insurer delivered earnings surprise in the last four
quarters with an average beat of 11.5%.
ACE Limited remains focused to ramp up its inorganic growth profile
with continued buyouts. The company recently announced that it will
expand in Brazil with the buyout of Itau Seguros SA. The increasing
exposure in Brazil is expected give a boost to combined large
commercial P&C business and help small commercial A&H
personal lines and life business. Acquisitions have also improved
premium writings of the company.
ACE Limited has also been strengthening its balance sheet with
improving cash balance and financial leverage.
ACE Limited remains focused on enhancing its shareholders' value.
In the last quarter, the company returned $460 million to its
shareholders. The company also expects to repurchase about $1.5
billion of shares in 2014, of which it has already bought back $700
million in the first seven months. In addition, its dividend yield
is better than the industry average.
Nonetheless, increased expenses have been taking a toll on margin
expansion. If expenses continue to increase at a higher pace than
revenue growth, operating margin expansion will be affected
Being a property and casualty insurer, ACE Limited is exposed to
cat occurrences. If the company incurs a huge cat loss, its
underwriting results and combined ratio will be hugely affected.
With respect to estimate revisions, the Zacks Consensus Estimate
for 2014 and 2015 increased as most of the estimates were raised
over the last 60 days. It is currently pegged at $9.13 (up 1.8% as
10 of 12 estimates moved north) for 2014 and at $9.33 (up 0.9% as 7
of 12 estimates were raised) for 2015. The expected long-term
earnings growth rate of the stock is 10%.
Other Stocks to Consider
Some better-ranked property and casualty insurers include Global
Indemnity plc (
), Mercury General Corp. (
) and Endurance Specialty Holdings Ltd. (
). All these stocks carry a Zacks Rank #2 (Buy).
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