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On Jun 11, Zacks Investment Research downgraded Fortegra Financial Corporation (FRF - Snapshot Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Fortegra Financial has witnessed sharp downward estimate revisions after reporting disappointing first-quarter 2013 results. Shares of this multi-line insurer have been on a downtrend since it reported its first-quarter results.

Fortegra Financial reported its first-quarter earnings per share of 16 cents on May 13. The result lagged the Zacks Consensus Estimate by 27.3% and the year-ago quarter by a penny.

Lower bottom-line numbers exhibited the impact of a 38% increase in total expense. Higher personal costs, other operating expenses, depreciation and amortization and amortization of intangibles, partially offset by lower interest expense, drove the increase.  Acquisitions of ProtectCELL and 4warranty in 2012 added $4.4 million to the increase in operating expenses, while severance and other one-time expenses related to the previously announced re-organization of operations contributed $1.2 million. However, a 25% year–over-year improvement in top line limited the downside.

Adjusted EBITDA margin of Fortegra Financial contracted 340 basis points year over year to 31.2% in the first quarter.

While notes payable increased nearly 23% year over year to $91.7 million, debt capital ratio of Fortegra Financial deteriorated 300 basis points year over year to 39% at the end of the first quarter.

The Zacks Consensus Estimate for 2013 decreased 6.7% to 98 cents per share as 2 of 4 estimates moved south over the last 30 days. For 2014, 2 of 4 estimates were revised downward, sinking the Zacks Consensus Estimate by 5.2% to $1.10 per share over the same time frame.

Other Stocks to Consider

Not all multi-line insurers are performing as poorly as Fortegra Financial. Assured Guaranty Ltd. (AGO - Snapshot Report), Eastern Insurance Holdings, Inc. and Enstar Group Limited (ESGR - Snapshot Report) carry a favorable Zacks Rank #1 (Strong Buy) and are worth considering.


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