Why Amerisafe Is a Strong Sell - Analyst Blog

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On Jun 28, 2014, Zacks Investment Research downgraded Amerisafe Inc. ( AMSF ) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Amerisafe has witnessed sharp downward estimate revisions since it reported first-quarter 2014 earnings that lagged the Zacks Consensus Estimate. Shares of this insurer have declined 5.2% since it reported first-quarter results to close at $40.31 in the last trading session. Given the absence of any significant near-term growth catalyst amid a moderate growth momentum, it has more downside left.

On Apr 30, Amerisafe reported first-quarter earnings per share of 56 cents, missing the Zacks Consensus Estimate by 11%. However, earnings increased year over year due to higher premiums and lower-than-expected decline in investment income.

Amerisafe incurred higher loss and loss adjustment expenses (LAE) compared with the prior-year quarter. Total expenses also increased from the first quarter of 2013 and underwriting expense ratio weakened due to higher underwriting and operating costs. These offset the positive impacts of the improvement in top line .

Additionally, the sharp increase of unemployment in the economy has hampered the investment portfolio of Amerisafe. The aforementioned factors may also have hindered share buybacks in all of 2012 and 2013. Given the current economic volatility, any significant improvement is unlikely in the near future.

Moreover, higher underwriting expenses also withheld the desired underwriting profitability of Amerisafe. Although combined ratio showed some year over year improvement it deteriorated sequentially by 1270 basis points.

The Zacks Consensus Estimate for 2014 decreased 7.8% to $2.47 per share over the last 60 days. For 2015, most of the estimates were revised downward over the last 60 days, sinking the Zacks Consensus Estimate by 7.2% to $2.98 per share.

Other Stocks to Consider

Better-ranked players in the insurance space that look attractive at current levels include Unum Group ( UNM ), China Life Insurance Co. Ltd. ( LFC ) and Lincoln National Corp. ( LNC ). All these stocks have a Zacks Rank #2 (Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

AMERISAFE INC (AMSF): Free Stock Analysis Report

LINCOLN NATL-IN (LNC): Free Stock Analysis Report

CHINA LIFE INS (LFC): Free Stock Analysis Report

UNUM GROUP (UNM): Free Stock Analysis Report

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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: AMSF , LNC , LFC , UNM

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