On Jul 5, we downgraded our recommendation on
) to Neutral based on its consistently higher expense trend and
lower yield from investments that limit earnings upside from
current levels. Yet, improved underwriting performance instills
Why the Downgrade?
Amerisafe reported first-quarter 2013 operating earnings per
share of 47 cents on May 2, exceeding 2 cents recorded in the
year-ago quarter. However, results came in line with the Zacks
Consensus Estimate. While total revenue of $86.5 million rose
9.9% year over year, it lagged the Zacks Consensus Estimate of
$89 million. Higher premiums were partially offset lower
investment income and higher loss and loss adjusted expenses.
Although underwriting profits surged over 50% during the
reported quarter, underwriting expenses also grew about 29%,
leading to deteriorated expense ratio and return on equity (ROE).
Overall, Amerisafe delivered positive earnings surprises in 2 of
the last 4 quarters with an average negative surprise of
Accordingly, the Zacks Consensus Estimate for both 2013 and
2014 stood intact at $2.04 per share and $2.48 per share,
respectively, over the last 60 days. With the estimates of this
specialty provider of workers' compensation insurance having
witnessed no revisions, we see no clear directional pressure on
the stock in the near term. Consequently, the company now has a
Zacks Rank #3 (Hold).
While the pricing environment and industry demand has
witnessed some improvement, the company is expected to face
uncertainty in the upcoming quarters as the market weakness
continues to hurt payrolls. Nevertheless, improved underwriting
experience, prudent capital management, higher cash and
investment portfolio, efficient capital deployment and
affirmation of a strong financial strength rating augur decent
Other Insurers to Consider
While we prefer to remain on the sidelines on Amerisafe for
now, other stocks that are outperforming in the insurance sector
Hilltop Holdings Inc.
AmTrust Financial Services Inc.
HCI Group Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
AMERISAFE INC (AMSF): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
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