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AmTrust Financial Upped to a Strong Buy - Analyst Blog

Posted: 5/12/2014 4:38:00 PM
Referenced Stocks: AFH;AFSI;AHL;ENH

On May 9, Zacks Investment Research upgraded AmTrust Financial Services Inc. ( AFSI ) to a Zacks Rank #1 (Strong Buy) from a Zacks Rank #3 (Hold).

Why the Upgrade?

AmTrust Financial has been experiencing rising earnings estimates on the back of robust first-quarter 2014 results. Consistently improving organic growth, diversified product portfolio and healthy capital position have also been fueling improved market trends.

Additionally, this specialty property-casualty insurer outperformed the one-year Nasdaq index that had projected growth of 18.5%, by yielding a return of 46.7%. AmTrust Financial also delivered positive earnings surprises in the last 4 quarters with an average beat of 21.8%.

On May 1, AmTrust Financial reported first-quarter 2014 operating earnings per share of $1.24, which outpaced the Zacks Consensus Estimate of 94 cents by about 33.3% as well as the year-ago quarter figure of 74 cents by 67%.

The year-over-year top -line growth of 89% stemmed from net earned premiums that increased two fold, 50% ascent in service and fee income and 57% growth in investment income. Despite higher underwriting and acquisition expenses, combined ratio and margins witnessed improvement.

Meanwhile, AmTrust Financial's prudent risk and debt management is reflected by its long-term leverage that improved by180 basis points from 2013-end to 26.2% at Mar 2014-end. This is particularly impressive given the higher number of acquisitions of late. An appreciated cash position, book value per share and return on equity (ROE) further paved the way for a 43% dividend hike and continue to inspire investors and ratings agencies.

Based on AmTrust Financial's fundamental strength and prudent capital management, the Zacks Consensus Estimate for 2014 rose 6.8% to $4.22 per share in the last 30 days. Meanwhile, the estimate for 2015 moved north by 5% to $4.85 during the same period.

Moreover, the Most Accurate Estimate for AmTrust Financial's 2014 and 2015 earnings stands at $4.71 and $5.08 a share, resulting in an Earnings ESP of +11.6% and +4.7%, respectively. Furthermore, no downward revision in estimates was witnessed for both the years.

Other Stocks to Consider

Apart from AmTrust Financial, other top-ranked insurers in the industry include Aspen Insurance Holdings Ltd. ( AHL ), Atlas Financial Holdings Inc. ( AFH ) and Endurance Specialty Holdings Ltd. ( ENH ). All these stocks sport the same Zacks Rank as AmTrustFinancial.

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