We have retained our Neutral recommendation on
). The low interest rate environment, rising operating expenses
and weather related losses will likely offset the positive impact
of the acquisitions and dividend hike made by ACE. The excess
liability insurance provider currently carries a Zacks Rank #3
Why the Reiteration?
Over the last 30 days, one out of 11 estimates moved upward while
one was nudged down keeping the Zacks Consensus Estimate for 2013
at $8.10, translating into a year-over-year improvement of 5.82%.
Being one of the largest Property and Casualty (P&C)
insurers, ACE is exposed to losses resulting from natural
disasters, man-made catastrophes and other catastrophic events.
The first quarter of 2013 was no exception. The company incurred
a catastrophe loss of $28 million in the first three months of
2013, swelling 100% year over year. The deterioration came on the
back of heavy flooding in Australia and severe storms in the U.S.
Counting on the positives, ACE has been expanding its operations
through acquisitions. The recent venture in this regard was the
completion of its pending acquisition of ABA Seguros from Ally
Financial. This acquisition is expected to strengthen its
personal lines and agency business. Including this deal, ACE has
completed two acquisitions over the past five months. Overall,
incessant acquisitions on the part of the company are considered
favorable as it will help the company reach its Return on Equity
(ROE) goal of 15% and boost premium growth going forward.
ACE also has a record of increasing shareholders worth through
share buybacks and dividend payouts. The Board in Aug 2011
authorized a $303 million worth of share buyback in addition to
the $197 million remaining under its previous authorization. As
of Mar 31, 2013, the company is left with $307 million under its
authorization. ACE also increased its quarterly dividend by 4% to
51 cents per share in May 2013. The company boasts of a dividend
yield of 2.23%, higher than the industry yield of 2.20%.
Operating expenses of ACE has also been rising for the past few
years. In the first quarter as well ACE reported an increase in
operating expenses by 4.3% mainly due to increase in losses and
loss expenses, policy acquisition costs, and administrative
expenses. Continuous escalation of operating expenses is expected
to have an adverse impact on operating margin going forward.
Also, lower interest rates and the adverse impact of foreign
exchange has hurt net investment income for some time.
Other Stocks to Consider
Among others from the industry,
Cincinnati Financial Corporation
Arch Capital Group Limited
) carry Zacks Rank #2 (Buy) and
AXIS Capital Holdings Limited
) carries a favorable Zacks Rank #1 (Strong Buy).
ACE LIMITED (ACE): Free Stock Analysis Report
ARCH CAP GP LTD (ACGL): Free Stock Analysis
AXIS CAP HLDGS (AXS): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
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