Staying Neutral on Hallmark

Hallmark Financial (HALL - Snapshot Report) is expected to release its 4Q07 during the week of March 17, 2008. 3Q07 operating EPS for HALL were in-line with our expectations, benefiting from good premium growth, additional investment income from a larger investment portfolio resulting from increased retention of premiums, and a favorable prior-year loss reserve development.

We continue to expect there should be opportunities for the company to leverage its suite of products by broadening its geographical niches, as well as its current product offerings within its existing markets in the coming years. The operating performance, improved cash flow, and financial flexibility, should continue to be reflected in the results.

However, it is difficult to expect the shares to retest their recent priced-to-perfection level over the near-to-medium term. We are keeping our Hold rating. We are currently maintaining our 2007 and 2008 earnings expectations and installing our early 2009 earnings expectation at $1.45 per share.

At the current level, the shares of Hallmark trade at 1.40x the 3Q07 book value of $8.29 per share. Our new six-month price target of $12.95 per share incorporates a price-to-book multiple of 1.40x on our estimated book value of $9.25 per share at June 30, 2008. In addition, the quantitative Zacks Rank for HALL is currently 3 (unchanged relative to December 17, 2007), indicating no clear directional pressure on the shares over the near term. Short interest ratio is 6.72 versus 3.5 previously.

Read the full analyst report on HALL.