On Sep 17, 2013, Zacks Investment Research downgraded
Hallmark Financial Services Inc.
) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Earnings estimates for Hallmark Financial have been trending
down, owing to dismal second-quarter 2013 results and a reduced
investment portfolio. The company reported second-quarter results
with a negative earnings surprise of 166.7%.
Additionally, this property-casualty and specialty insurer
underperformed the year-to-date Nasdaq index, which posed growth
of 26.5% against Hallmark Financial's negative return of
On Aug 8, Hallmark Financial reported second-quarter operating
loss per share of 16 cents, which was wider than the Zacks
Consensus Estimate and year-ago loss of 6 cents and 10 cents,
The downside was due to a 16.6% year-over-year decline in net
investment income along with a 17.9% upsurge in total expenses,
which together more than offset the top-line growth of 17.4%.
While growth was witnessed in premiums earned, loss adjusted
expenses, catastrophe losses and underwriting expenses were still
high, as reflected by the deteriorated combined ratio.
Nevertheless, book value per share and operating cash flow
Although Hallmark Financial sits on a modest cash position,
lack of current growth catalysts and non-renewals in its primary
Florida markets restrict desired growth. Moreover, its Personal
Lines business is facing operating challenges after the company
discontinued some of its products and reduced premiums from many
of its operational areas.
Fluctuations in currencies and equity markets and low interest
rates have taken a toll on the investment portfolio and finance
charges. These factors are also making investors jittery.
The Zacks Consensus Estimate for 2013 plunged 71.4% to
earnings of 10 cents per share in the last 60 days, 44.4% lower
than the 2012 figure. Moreover, the estimate for 2014 is pegged
at 25 cents a share, down 50% in the last 60 days. Meanwhile, no
upward revisions in estimates were witnessed for either year.
Other Stocks to Consider
While we prefer to avoid Hallmark Financial at present, other
stocks that are outperforming in the insurance sector include
Global Indemnity Plc
CNA Financial Corp.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
CNA FINL CORP (CNA): Free Stock Analysis
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
HALLMARK FINL (HALL): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
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