Why Is Alleghany (Y) Up 0.4% Since Last Earnings Report?
A month has gone by since the last earnings report for Alleghany (Y). Shares have added about 0.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alleghany due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Alleghany's Q3 Earnings Top Estimates, Revenues Fall Y/Y
Alleghany’s third-quarter 2019 operating earnings of $7.61 per share beat the Zacks Consensus Estimate by 25.2% on the back of higher revenues. In the year-ago quarter, the company had incurred a loss of $1.07 per share.
Revenues in the quarter declined 0.8% year over year to $2.2 billion.
Net premiums written rose 14.1% year over year to $1.4 billion, attributable to growth in gross premiums written in the recent quarters.
Net investment income came in at $148 million in the quarter, up 16.1% year over year. The upside was driven by higher interest income, partially offset by lower dividend income.
Total costs and expenses escalated 11.1% to $2 billion.
Reinsurance Segment: Net premiums written increased 12.8% to $1.1 billion owing to TransRe’s purchase of the renewal rights to a block of U.S. treaty reinsurance business, partially offset by a decrease in net premiums written related to a certain large whole account quota share treaty and the impact of changes in foreign currency exchange rates.
The segment's underwriting profit was $6 million against underwriting loss of $172.4 million reported in the year-ago quarter. Also, its third-quarter combined ratio contracted 1840 basis points (bps) to 99.5%, primarily due to significantly lower net catastrophe losses.
Insurance Segment: Net premiums written rose 19% year over year to $302.2 million driven by robust contribution from CapSpecialty and RSUI.
Underwriting profit of $26.8 million declined 17.3% year over year. The combined ratio of this reported segment increased 320 bps to 90.9% due to lower favorable prior accident year loss reserve development, partially offset by lower catastrophe losses.
Alleghany exited the third quarter with $897.5 million cash, down 13.6% from the figure at 2018 end.
Senior notes and other debt increased 1.6%from the level at 2018 end to $1.7 billion.
Alleghany’s shareholder equity at the end of the third quarter increased 14.8% from the level as of Dec 31, 2018 to $8.8 billion.
Book value per share was $612.87 as of Sep 30, 2019, up 16.1% from the level as of Dec 31, 2018.
Share Repurchase Update
As of Sep 30, 2019, the company had $659 million remaining under its share repurchase authorization.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.66% due to these changes.
At this time, Alleghany has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Alleghany has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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