EMC Insurance Group: A Strong Sell - Analyst Blog

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On Dec 17, 2013, Zacks Investment Research downgraded EMC Insurance Group Inc. ( EMCI ) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold).

Why the Downgrade?

EMC Insurance has been experiencing declining earnings estimates on the back of improved third-quarter 2013 results and a reduced investment portfolio. Additionally, this property-casualty insurer and reinsurer underperformed the year-to-date Nasdaq index, which posed a growth of 33.3% against EMC Insurance's 26.2%.

On Nov 8, EMC Insurance reported third-quarter 2013 operating earnings per share of 50 cents, which is at par with the Zacks Consensus Estimate. However, earnings lagged the prior-year quarter figure of 65 cents.

Top-line growth of 7.8% year over year was more than offset by 10.4% hike in total expenses. While premiums earned drove the top line, investment income faltered. Higher-than-expected expenses also reflected deteriorated combined ratio of 100.8% from 99.3% in the year-ago period.

While raised earnings guidance for 2013 and the latest dividend hike reflect some optimism, the low interest rate environment is likely to weigh on the underwriting margins and investment returns.

Subsequently, EMC Insurance expects combined ratio of 98.4% along with a decline in investment income in mid-single-digit range in 2013. Additionally, weakening reserves have taken a toll on the financials, thereby raising caution for the upcoming quarters.

Meanwhile, the Zacks Consensus Estimate for 2013 dipped 6.7% to $2.80 per share in the last 60 days. Moreover, the same for 2014 plummeted 18.3% to $2.45 during the same period. Even on a year-over-year basis, the earnings per share for 2014 are projected to decline by 12.5%. No upward revision in estimates was witnessed for both the years.

Other Stocks to Consider

While we prefer to avoid EMC Insurance Group for the time being, some better-ranked insurers in the industry include HCI Group Inc. ( HCI ), The Hanover Insurance Group Inc. ( THG ) and Hallmark Financial Services Ltd. ( HALL ). All these stocks sport a Zacks Rank #1 (Strong Buy).

EMC INSURANCE (EMCI): Free Stock Analysis Report

HALLMARK FINL (HALL): Free Stock Analysis Report

HCI GROUP INC (HCI): Free Stock Analysis Report

HANOVER INSURAN (THG): Free Stock Analysis Report

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Zacks Investment Research

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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