On Oct 4, we reiterated our recommendation on
) at Neutral based on its steady operating growth and financial
sturdiness. However, higher expenses and low investment yields
simultaneously raise caution.
Why the Retention?
Estimates for Amerisafe have remained steady since the company
reported its second-quarter 2013 results on Jul 31. The company's
earnings per share of 45 cents and revenues of $87.5 million
exceeded the year-ago results by 150% and 14.2%, respectively.
However, both the top and bottom line lagged the Zacks Consensus
Estimate by 3.8% and 10%, respectively.
While higher premiums shored up the top line as well as the
underwriting results, higher underwriting expenses along with
lower investment yields deterred the desired upside.
Nevertheless, improved investment portfolio and capital position
drove the book value of the shares, operating cash flow, return
on equity (ROE) and combined ratio.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for 2013 edged down 1% to $1.96 per share in
the last 60 days. Additionally, the Zacks Consensus Estimate for
2014 remained static at $2.47 a share. With the Zacks Consensus
Estimate for both 2013 and 2014 showing slight downward pressure
on the stock in the near term, the company now has a Zacks Rank
However, on a year-over-year basis, earnings in 2013 is
expected to increase 32.3% over 2012, and further escalate 26.1%
Despite the lingering macro concerns, Amerisafe holds a
risk-free balance sheet. Additionally, the company's growth is
sustained by its double-digit growth in premiums written, fair
liquidity, capital flexibility and an enhanced operating cash
flow, which spiked 41.9% in the first half of 2013.
Amerisafe is well-positioned to capitalize on the changing
market dynamics, wherein the workers' compensation market remains
firm as carriers re-evaluate their positions. This provides quite
a boost to the company's fundamental growth. These factors score
well with the ratings agencies as well.
However, lower investment yields deters the desired upside in
earnings. Higher loss and loss adjusted expenses (LAE) as well as
volatile underwriting experience further add to the woes, also
hindering share buybacks during the whole of 2012 and so far in
Other Financial Stocks That Warrant a Look
While we prefer to avoid Amerisafe for some time, other stocks
in the financial sector that are outperforming include
Employers Holdings Inc.
Total System Services Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
AMERISAFE INC (AMSF): Free Stock Analysis
EMPLOYERS HLDGS (EIG): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
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