We retain our Neutral recommendation on
XL Group plc
) due to mixed third quarter results. The property and casualty
insurer currently carries a Zacks Rank #3 (Hold).
XL Group's third-quarter 2013 operating net income of 53 cents
per share missed the Zacks Consensus Estimate and also lagged the
prior-year quarter earnings. Higher natural catastrophe losses
and higher levels of losses in Insurance were attributed to the
year-over-year decline. Nonetheless, revenue fared better on both
The Zacks Consensus Estimate for 2013 is currently pegged at
$3.03, down 1.3% over the last 30 days, while the same for 2014
rose 0.7% to $3.04 over the same time frame.
Counting on the positives, with a strong international exposure
and a diversified suit of product offerings, we believe XL Group
is well positioned to write higher premiums fueling top-line
growth, going forward.
The company continues to make share repurchases. It is currently
left with $425 million worth of shares available for purchase
under its recent authorization. With a strong balance sheet and
ability to generate healthy cash flow, we expect the company to
indulge in more buybacks going forward, thereby sharing more
profit with shareholders.
XL Group also scores strongly with credit rating agencies. In
October, A.M. Best reiterated the financial strength rating (FSR)
of A (Excellent) and ICRs of "a" of the property/casualty
subsidiaries of XL Group. The outlook for ICR was upgraded to
positive from stable. The rating agency also reiterated the ICRs
of "bbb" of XL and XLIT Ltd. and upgraded the outlook to positive
On the tepid side, XL has substantial exposure to losses
resulting from natural and man-made disasters and other
catastrophic events. Net investment income at XL Group has been
on a declining trend for the past few years, and the second
quarter was no exception. With performance closely linked to
credit markets, the exposure to these assets can further cause
volatility in investment earnings.
Additionally, XL Group's operating expenses have been on a rising
trend over the last few years.
Other stocks to Consider
Some better-ranked stocks include
Aspen Insurance Holdings Ltd
Cincinnati Financial Corp
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ASPEN INS HLDGS (AHL): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
ALLEGHANY CORP (Y): Free Stock Analysis
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