Alleghany CorporationY has built a reputation in the market as a property and casualty (P&C) insurer, engaged in insurance and reinsurance businesses and holding an excellent record in catering to its clients' diverse needs. Over the years, the customers have gained a lot from the company's compelling suite of varied insurance products and services. By retaining this favorable buzz among brokers, this Zacks Rank #1 (Strong Buy) P&C insurer consistently emerges stronger over time and is well poised to retain its purple patch in the near future.
Alleghany has been witnessing an upward trend pertaining to its top line, driven by a continued improvement in gross written premium. We expect the company to continue displaying this momentum in the near term, which in turn, is likely to accelerate its overall growth.
Further, the P&C insurer has been displaying improving underwriting results over a considerable period of time owing to strong underwriting performances at its segments, namely TransRe and RSUI, CapSpecialty and PacificComp. This has been further boosting the company's results and we expect this positive phase to continue in the near term as well.
Investment income, a major contributor to insurers' top line, has been on progress track over a considerable period of time, backed by rising interest rates. The P&C insurer anticipates witnessing better investment results in the short term on the back of a slow-but-steady improving pace of interest rates.
Alleghany's growth trajectory remains impressive, courtesy of its strategic buyouts. Prudent acquisitions bear testimony to the company's long-term growth strategy. The M&A activity has enabled the company to expand its product base and reach new industrial markets. We expect Alleghany to continue investing in such initiatives, which will likely extend its geographical footprint and add new capabilities to its portfolio.
A strong capital position aids the company to return value to its shareholders through buybacks. Moreover, a strong balance sheet has allowed the company to remain well-positioned to provide support to its units for taking advantage of growth opportunities.
With respect to book value per share, the company has been increasing the same since the financial crisis in 2008. It witnessed a five-year CAGR (2012-2017) of 7.9% and is in line with the 7-10% long-term annual growth target.
An Outperformer : Shares of Alleghany have lost 1.5% year to date, narrower than the industry 's 4.7% decrease. We believe, the company's aforementioned strengths will drive the stock higher in the near term.
Attractive Valuation : Looking at the company's price-to-book ratio, the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next, valuation looks attractive at the current level. The company has a trailing 12-month P/B ratio of 1.07, falling noticeably below the industry average of 1.35.
Northbound Estimate Revisions : The company has witnessed an upward estimate revision for both 2018 and 2019 with the consensus mark moving north by nearly 13.6% and 2.9%, respectively, over the last 60 days.
Positive Earnings Surprise History : Alleghany flaunts an encouraging earnings surprise history, having outshined the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 17.61%.
Other Stocks to Consider
Some other top-ranked stocks from the insurance industry are Argo Group International Holdings, Ltd. ARGO , NMI Holdings, Inc. NMIH and AXIS Capital Holdings Limited AXS , each sporting a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here.
Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company delivered positive surprises in three of the last four quarters with an average beat of 11.87%.
NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with positive earnings surprises in three of the last four quarters with an average beat of 24.55%.
AXIS Capital provides various specialty insurance and reinsurance products worldwide. The company pulled off positive surprises in two of the last four quarters with an average beat of 5.11%.
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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.