On May 21, we issued an updated research report on
). The company has been benefiting from strong core fundamentals
and diversified portfolio initiatives over the past couple of
years. However, declining investment returns and moderated growth
in premiums raise concern.
This Zacks Rank #3 (Hold) stock has delivered positive earnings
surprises in 2 of the last 4 quarters with an average beat of
14.2%. The company's first-quarter earnings lagged the Zacks
Consensus Estimate by 11.1% but was higher than the year-ago
quarter number by 19.1%.
After posting mid double-digit growth in premiums written for
the 12 consecutive quarters until fourth-quarter 2013, these
toned-down to about 8% growth in first-quarter 2014. Moreover,
although investment income stabilized, investment yield
deteriorated to 3.8% at Mar 2014-end from 4.2% in the year-ago
period. The higher trend of expenses and lack of any near-term
growth catalyst are the other challenges.
Nevertheless, operating leverage continues to remain strong as
reflected by improved underwriting results, development reserves,
combined ratio and return on equity (ROE). These pillars of growth
also support Amerisafe's liquidity, as evident from its strong cash
flows and risk-free balance sheet.
We believe that Amerisafe's efficient deployment of excess
capital, particularly, hiking regular cash dividends by 50% within
a year of the payout initiation, along with the first extraordinary
cash dividend payout of $0.50 per share (all in Mar 2014) will keep
long-term shareholders invested in the stock.
Overall, a restrained risk-reward balance in the near term has
led to negative estimate revisions for 2014 and 2015. As a result,
the Zacks Consensus Estimate for 2014 and 2015 are pegged at $2.47
and $2.98 per share, down 7.8% and 7.2%, respectively, in the last
Key Picks in the Sector
Currently, we prefer to remain at the periphery regarding
Amerisafe. However, some top-ranked stocks in the insurance sector
AmTrust Financial Services Inc.
OneBeacon Insurance Group Ltd.
HCI Group Inc.
), all sporting a Zacks Rank #1 (Strong Buy), are worth
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AMTRUST FIN SVC (AFSI): Free Stock Analysis
AMERISAFE INC (AMSF): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis Report
ONEBEACON INSUR (OB): Free Stock Analysis
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