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Bull of the Day

Financials have been strong performers in this latest leg of the recovery, as these once beaten down companies have come back strong over the past six months. Yet while many investors might focus in on big banks for their exposure to this segment, one corner of the financial world has been doing even better; insurance.

This segment has seen even better performances than both the broad financial sector and the S&P 500 in the past few months, including a nearly 20% gain YTD for many broad insurance benchmarks. And with some shakiness on the revenue front for many big banking institutions, those who want to make a play on financials could be better served by looking at the insurance segment for exposure.

While many investors might focus in on big names like Progressive (PGR - Analyst Report) or Travelers Companies (TRV - Analyst Report) for exposure, taking a closer inspection of some overlooked smaller caps could be a better way to go. This is especially true if these firms are seeing solid estimate revisions and a clear path for growth, such as in the case of XL Group PLC (XL - Analyst Report).

XL Group in Focus

XL is an Irish-based global insurance and reinsurance company providing property, casualty and specialty products to a variety of organizations around the globe. The vast majority of their revenues are derived from premiums, though their investment income and underwriting business also contribute meaningfully as well.

The company has largely benefited from a lack of huge catastrophes in the recent past, which has helped them to keep earnings elevated. This trend, plus the added boost from the underwriting division—which increased threefold year-over-year—has helped to put the company in a very solid position (in a top performing industry no less) going forward.

Estimate Outlook

Analysts have also begun to take note of this positive trend and have begun to increase their expectations for the company.  While the near term picture for this metric is still mixed from a revision look, the current year and next year figures are pretty rosy.

In fact, in the last 60 days, we have seen 12 estimates move higher for the current year and ten move higher for the next year time frame. This compares to zero downward revisions for the 2013 fiscal year, and just one down for the 2014 time frame; a ratio (when combined) of 22 to 1 in favor of positive revisions.

But analysts haven’t just been revising their numbers up a little bit either, as the consensus has been shooting higher for both time frames. Just 90 days ago the 2013 consensus stood at $2.44/share while today it is at an impressive $2.87/share, a 17% increase in a quarter’s time.

While some might think this is too lofty of a goal for the company to reach, it is worth noting how admirably the firm has performed in earnings season. XL has beaten estimates by double digits in each of the past four quarters and has seen an average surprise of over 56% in the time frame, meaning that the firm is definitely capable of some big beats.

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This impressive earnings picture has bumped up XL to a Zacks Rank #1 (Strong Buy), putting it in elite company, and suggesting that it is a great investment right now. This is even more true when you consider that the stock has a Zacks Recommendation of Outperform, and that the insurance- property & casualty industry is one of the top 10 (out of 261) industries in the entire market.

Other Factors

If this solid earnings picture and top Zacks Rank wasn’t enough, it is also worth pointing out some of the shareholder friendly initiatives that the company is undertaking. These items look to help boost interest in XL and make it stand out even more when compared to its peers.

The firm bought back eight million shares and still has a big chunk of capital to buyback more shares in the weeks and months ahead as well. Additionally, the firm also boosted its dividend by 27%, to 14 cents a share, so it is doing its best to make shareholders happy on this front too.

Bottom Line

Financials seem like a great play and have seen strong momentum over the past few months. However, the real winning play in this segment has been insurance, as this corner has surged higher that both broad financials and the overall market.

While a broad play on the space could be an interesting idea, a look to XL could be a better choice. This firm has a tremendous earnings story, an increasing dividend, and stock buybacks, making it a great triple threat for investors as we approach the summer months.

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