We have upgraded our recommendation on
) to Outperform based on consistent top-line growth and sound
financial position witnessed over the last few quarters, which
paves the way for an improved growth outlook.
The company's first-quarter 2012 operating earnings of 45 cents
per share outpaced the Zacks Consensus Estimate of 33 cents per
share and the prior-year quarter earnings of 35 cents per share.
Consequently, operating net income escalated 28.6% year over year
to $8.4 million.
Reported results reflect higher premiums written and earned that
shored up the top line, underwriting results and investment
portfolio. These factors also drove the capital position, book
value of the shares and return on equity (ROE), while also
improving combined ratio and other profitability metrics. These
positives were mitigated by higher-than-expected loss and loss
adjustment expenses (LAE) and tax expense along with lower
Amerisafe has a history of profitable underwriting in the
hazardous industries in which it operates. We believe that the
company's specialized knowledge and extensive experience of
insuring employers engaged in hazardous industries will help it
serve its policyholders better, leading to enhanced employer
loyalty and policy retention.
After a period of consistent declines in the past years,
Amerisafe's top line started improving in 2011 with growth of 13.1%
over 2010, followed by 17.5% year-over-year growth in the first
quarter of 2012. The upward trend was driven by higher premiums and
improvement in investment income.
Additionally, Amerisafe's strong underwriting results are
reflected by its steady operating performance, stemming from
prudent management practices, better product pricing and demand
structure, effective loss control, safety measures and an active
claims management system. These factors have generated positive
calendar-year reserve development trends.
Looking ahead, we believe that Amerisafe is well positioned to
capitalize on changing market dynamics, wherein the workers'
compensation market remains firm, as carriers re-evaluate their
positions, thereby providing a boost to the company's fundamental
growth and competitive edge against peers such as
SeaBright Holdings, Inc.
Employers Holdings Inc.
Moreover, despite lingering macro concerns, Amerisafe holds a
risk-free balance sheet. Armed with a strong cash and investment
portfolio of $868.7 million at the end of the first quarter of
2012, up from $582.9 million at 2005-end, the company enjoys fair
liquidity and capital flexibility. This also enables Amerisafe to
efficiently deploy capital, primarily through share repurchases,
thereby retaining investors' confidence going forward.
Nevertheless, although the pricing environment and industry
demand has witnessed some improvement, Amerisafe is expected to
face uncertainty in the upcoming quarters as market weakness
continues to hurt payrolls, while sluggish investment yields pose
direct risks on the earnings potential. Nevertheless, prudent
capital management, expanded share repurchase planand affirmation
of a strong financial strength rating augur decent long-term
Based on the pros and cons, the Zacks Consensus Estimate pegs
earnings for the second quarter of 2012 at 40 cents per share,
which is about 74% higher than the year-ago quarter. For 2012,
earnings are expected to escalate about 52% over 2011 to $1.73 per
Currently, Amerisafe carries a Zacks Rank #1, implying a
short-term Strong Buy rating, at par with its long-term Outperform
AMERISAFE INC (AMSF): Free Stock Analysis
EMPLOYERS HLDGS (EIG): Free Stock Analysis
SEABRIGHT INSUR (SBX): Free Stock Analysis
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