Mercury General (MCY) a Strong Sell on Bleak Momentum - Analyst Blog

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On Mar 19, Zacks Investment Research upgraded Mercury General Corp. MCY by two notches straight to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold).

Why the Downgrade?

Mercury General has been witnessing declining earnings estimates eversince it announced dismal fourth-quarter 2014 results on Feb 9, whereby the company reported an operating loss of 13 cents per share. Results significantly lagged the Zacks Consensus Estimate of earnings of 39 cents and the year-ago earnings of 33 cents, thus delivering an average earnings miss of 13.6% for the trailing four quarters.

Higher catastrophe losses (300%) and total expenses more than offset the 4.4% increase in net written premiums and deteriorated the combined ratio to 105.6% from 102.5% in the year-ago quarter as well as the loss ratio. Even investment yields remained sluggish at 3.5% against 3.7% in the prior-year quarter.

Additionally, an elevated debt profile at 2014-end weakened the financial leverage. Subsequently, the debt-to-capital ratio deteriorated to 13.4% from 9.4% at 2013-end, implying significant capital risks.

Following Mercury General's fourth-quarter earnings, the company witnessed downward estimate revisions, reflecting a lackluster outlook. The Zacks Consensus Estimate for 2015 skid 5.3% to $2.51 per share in the last 60 days, while the same remained intact at $2.72 for 2016.

Moreover, the Most Accurate estimate for Mercury General's 2015 earnings currently stands at $2.46 a share, which translates into an Earnings ESP of -2.0%. This indicates the possibility of an earnings miss this year.

Other Stocks to Consider

Investors interested in the insurance industry could consider stocks like AmTrust Financial Services Inc. AFSI , Fidelity National Financial Inc. FNF and Arch Capital Group Ltd. ACGL . All of these stocks sport a Zacks Rank #1 (Strong 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

MERCURY GENL CP (MCY): Free Stock Analysis Report

AMTRUST FIN SVC (AFSI): Free Stock Analysis Report

FNF GROUP (FNF): Free Stock Analysis Report

ARCH CAP GP LTD (ACGL): 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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: MCY , FNF , ACGL

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