On Mar 20, 2013, shares of
Arch Capital Group Limited
) hit a 52-week high of $52.44. Previously, the company had
reported fourth-quarter results with a positive earnings surprise
of 63.3%. This financial service providing company witnessed
positive earnings surprises in 3 out of 4 quarters in 2012, with
an average beat of 24.2%.
During the fourth quarter, Arch Capital's top line grew 14.0% to
$855 million on a year-over-year basis and it surpassed the Zacks
Consensus Estimate by 3.0%. Results were driven by improvement in
net premiums earned (up 15.8% year over year) and net realized
gains (up 277.2% year over year).
Combined ratio also improved 290 basis points year over year to
95.4% in 2012.
On Feb 11, although Arch Capital reported fourth-quarter 2012
operating loss of 18 cents, it was narrower than the Zacks
Consensus Estimate loss of 49 cents.
Arch Capital acquired the credit and surety operations of
Zurich-based Ariel Reinsurance Company to enhance its reinsurance
We view favorably the company's pending acquisition of CMG
Mortgage Insurance Company (CMG MI) from PMI Mortgage Insurance
Company for $300 million. The acquisition will enable Arch
Capital to penetrate deeper into the U.S. Mortgage Insurance
Arch Capital also has a strong capital management policy. In
2012, the company deployed $2.73 billion to repurchase 108.7
million shares. With excess capital in hand, the company expects
to continue increasing shareholders value.
The Zacks Consensus Estimate for 2013 is pegged at $3.09, up
21.7% year over year. The Zacks Consensus Estimate for 2014 is
$3.18, up 2.9% year over year. The overall long-term expected
earnings growth rate for this stock is 9.4%.
However, valuation looks stretched for Arch Capital. The shares
are trading at a 5.9% premium to the peer group average on a
forward price-to-earnings basis and at a 29.3% premium to the
peer group average on a price-to-book basis. The return on equity
is 1.4% below the peer group average. Nevertheless, the 1-year
return from the stock is 42.61%, much above NASDAQ's return of
Arch Capital currently carries a Zacks Rank #1 (Strong Buy).
Other stocks in this industry such as
Cincinnati Financial Corporation
EMC Insurance Group Inc.
Homeowners Choice Inc.
) carry a Zacks Rank #1 (Strong Buy) and appear impressive.
ARCH CAP GP LTD (ACGL): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
EMC INSURANCE (EMCI): Free Stock Analysis
HOMEOWNERS CHCE (HCI): Free Stock Analysis
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