Arch Capital a Strong Buy, Ample Liquidity Aids Core Growth - Analyst Blog

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On Nov 14, Zacks Investment Research upgraded Arch Capital Group Ltd. ( ACGL ) by a notch to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Arch Capital has been witnessing appreciation in earnings estimates on the back of steady growth in core businesses in the recent quarters. Going forward, Arch Capital should continue to benefit from profitable writing of mortgage and insurance businesses, which are expected to mitigate market risks.

Despite the prevalent low interest environment, Arch Capital holds a strong investment portfolio, healthy capital, cash flow, risk-free balance sheet and diversified product portfolio. These positives not only boost the company's operating and competitive leverage but also support efficient capital deployment, thereby instilling a positive sentiment among investors as well.

Additionally, this property-casualty insurer and reinsurer delivered positive earnings surprises for four straight quarters with an average beat of 14%.

On Oct 29, Arch Capital reported third-quarter 2014 operating earnings per share (EPS) of $1.05, 9.4% higher than the Zacks Consensus Estimate of 96 cents. However, EPS came in a nickel lower than the year-ago figure of $1.10.

A year-over-year rise of 13.7% in premiums earned and 21.2% increase in net investment income along with higher net realized gains and underwriting income supported the top-line growth of 15.2%. Although expenses were higher, operating cash flow also improved 33.8% to $319.3 million during the reported quarter. Subsequently, the book value per share rose 10.6%.

Upward estimate revisions witnessed by Arch Capital also reflect optimism. The Zacks Consensus Estimate for 2014 and 2015 rose 1.6% and 2.2% to $4.34 and $3.67 per share, respectively, in the last 30 days. Notably, no downward estimate revision was witnessed for both the years.

Moreover, the Most Accurate estimate for Arch Capital's 2014 and 2015 earnings currently stand at $4.37 and $3.77 a share, translating into Earnings ESP of +0.7% and +2.7%, respectively. This indicates earnings beat possibilities for this year and the next.

Other Stocks to Consider

Investors interested in the insurance industry may also consider well-performing stocks like AmTrust Financial Services Inc. ( AFSI ), Atlas Financial Holdings Inc. ( AFH ) and Hallmark Financial Services Inc. ( HALL ) that have the same Zacks Rank as Arch Capital.

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AMTRUST FIN SVC (AFSI): Free Stock Analysis Report

ARCH CAP GP LTD (ACGL): Free Stock Analysis Report

ATLAS FINL HLDG (AFH): 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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