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Analyst Blog

On Dec 31, 2013, shares of Arch Capital Group Ltd. (ACGL - Snapshot Report) hit a new 52-week high of $59.78.

The momentum was driven by continued solid performace at the company.

With respect to earnings trend, Arch Capital delivered positive earnings surprises in the past 4 quarters, with an average beat of 32.8%. In the last reported quarter, earnings of $1.10 per share surpassed the Zacks Consensus Estimate by 27.9% and the year-ago quarter number by 26.4%.

Underwriting income rose 31.8% from the prior-year quarter with combined ratio improving 570 basis points year over year. The quarter also experienced rate increases.

Meanwhile, Arch Capital bought back $1.3 million shares in the third quarter taking the tally to $57.8 million worth shares repurchased in the first nine months of 2013. It was left with $712 million under its authorization.

Arch Capital’s debt-to-capital ratio at quarter-end also remained low at 6.8%.

The Zacks Consensus estimate also witnessed an upside with estimates for 2013 increasing 3.8% to $4.13 over the last 60 days, translating into a year-over-year increase of 62.4%. The same for 2014 rose 3.9% to $3.49 over the same time frame.

The Zacks Consensus estimate for the fouth quarter is currently pegged at 89 cents, representing a potential 595% year-over-year improvement. The expected long-term growth rate for the stock is 10.6%.

However, valuation for Arch Capital looks stretched. The shares are trading at a 3.0% discount to the peer group average on a forward price-to-earnings basis and at a 15.9% premium on a price-to-book basis. Return on equity, on the other hand, is 7% lower than the peer group average. The year-to-date return from the stock of 37.6% is also lower than the Nasdaq return of 41.1%.

Arch Capital presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the property and casualty sector include Allied World Assurance Company Holdings, AG (AWH - Snapshot Report), AmTrust Financial Services, Inc. (AFSI - Snapshot Report) and Aspen Insurance Holdings Ltd. (AHL - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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