Arch Capital Hits 52-Week High - Analyst Blog


On Mar 20, 2013, shares of Arch Capital Group Limited ( ACGL ) 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 operations.

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 market.

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 6.5%.

Arch Capital currently carries a Zacks Rank #1 (Strong Buy). Other stocks in this industry such as Cincinnati Financial Corporation ( CINF ), EMC Insurance Group Inc. ( EMCI ) and Homeowners Choice Inc. ( HCI ) carry a Zacks Rank #1 (Strong Buy) and appear impressive.

ARCH CAP GP LTD (ACGL): Free Stock Analysis Report

CINCINNATI FINL (CINF): Free Stock Analysis Report

EMC INSURANCE (EMCI): Free Stock Analysis Report

HOMEOWNERS CHCE (HCI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ACGL , CINF , EMCI , HCI

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