Why the Downgrade?
National Interstate has been witnessing downward estimate revisions since the company's first-quarter 2014 results. Moreover, it has a sluggish growth outlook amid the absence of growth catalysts in the near term.
Additionally, this specialty property-casualty insurer underperformed the one-year Nasdaq which recorded growth of 31% against a negative return of 3.1% clocked by the company. With respect to earnings performance, National Interstate has delivered negative earnings surprises in 3 of the last 4 quarters with an average miss of -63.1%.
On May 6, National Interstate reported first-quarter 2014 operating earnings per share (EPS) of 39 cents, which was in line withthe Zacks Consensus Estimate but higher than the prior-year quarter figure by 8.3%.
Top-line growth of about 6.1% was offset by higher-than-expected total expenses that rose 6.3%, marring the desired upside. Subsequently, improvements in expense and combined ratios as well as return on equity (ROE) were marginal.
Meanwhile, the specialty personal lines of National Interstate's business have been sluggish. The gross premiums written in this segment plunged 32.3% year over year in first-quarter 2014.
The levelling of interest rates are also expected to hurt investment returns in the upcoming quarters.Overall, the weak fundamental growth prospects amid sluggish market conditions have been failing to signal any positive investor sentiment at the moment.
Moreover, the Zacks Consensus Estimate for both 2014 and 2015 moved south by 4.2% each to $2.37 and $1.59 and $1.83 a share, respectively, in the last 60 days. Meanwhile, no upward estimate revision was witnessed for both the years, reflecting a slow growth momentum.
Insurers Worth Consideration
While we prefer to avoid National Interstate for the time being, better-ranked insurers such as Endurance Specialty Holdings Ltd. ( ENH ), AmTrust Financial Services Inc. ( AFSI ) and Hallmark Financial Services Inc. ( HALL ) are worth reckoning. All these stocks sporta Zacks Rank #1 (Strong Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.