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AmTrust Financial Services, Inc. (AFSI - Snapshot Report) recently reported much better than expected financial results for the first quarter of 2011.

Earnings per share came in 38% above the Zacks Consensus Estimate, marking the company's 7th consecutive positive earnings surprise. The company also beat on the top-line thanks to a surge in net earned premium.

Analysts virtually unanimously revised their estimates higher off the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy).

Valuation looks attractive with shares sporting a PEG ratio of 0.6. AmTrust has also been aggressively raising its dividend, which currently yields 1.6%.

First Quarter Results

On May 3, AmTrust reported first quarter earnings per share of 76 cents, crushing the Zacks Consensus Estimate of 55 cents.

Total revenue for the quarter came in a $275.8 million, also well ahead of consensus, which was calling for $220.0 million. It was a 35% increase over the same quarter in 2010.

Much of the revenue gain was driven by a 35% increase in net earned premium. Commissions and other revenue jumped 36% to $75.5 million.

The company's combined ratio was a solid 87.0% in the quarter. The combined ratio is the combination of the claims ratio and the expense ratio. It is calculated as incurred losses plus expenses divided by earned premium.

Outlook

Estimates shot higher following the company's strong first quarter results. The 2011 Zacks Consensus Estimate is currently $2.59, up from $2.40 just 30 days ago. This corresponds to 14% growth over 2010 EPS.

Estimates for 2012 also moved higher off the strong quarter. The 2012 consensus estimate is $2.79, representing 8% EPS growth.

AFSI is a Zacks #1 Rank (Strong Buy) stock.

Dividend

AmTrust has paid a regular quarterly dividend since it went public in late 2006. In its short history, the company has raised its dividend 6 times at an average annual rate of 41%.

It currently yields 1.6%.

AmTrust's payout ratio is still relatively low at 13%, so expect more large dividend hikes in the near future.

Valuation

The valuation picture looks attractive for AFSI. Shares trade at just 7.9x forward earnings, a significant discount to the industry average of 12.7x. Its PEG ratio is only 0.6 based on a 5-year growth rate of 13.5%.

AmTrust Financial Services, Inc. is a multinational insurance holding company which offers specialty property and casualty insurance products. It is headquartered in New York City and has a market cap of $1.2 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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