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Analyst Blog

Although shares of ProAssurance Corporation (PRAA - Analyst Report) moved up slightly subsequent to the company’s recent endeavor toward expanding its U.K operations, it failed to retain the momentum thereafter. On Feb 4, 2014, the company had announced the buyout of the Individual Voluntary Arrangements (IVA) Master Servicing Platform and other operating assets related with it from Pamplona Capital Management, LLP (PCM).

The deal, to be closed before mid-2014, conforms to ProAssurance’s business strengthening initiatives in the U.K., including the acquisition of U.K. consumer debt since 2012.

IVA is an alternative tool that allows individuals to evade bankruptcy through a repayment proposal that is presented to creditors by an insolvency practitioner. For quite some time now, the U.S. bankruptcy operations of ProAssurance have significantly contributed to the company’s profits. 

Now with the acquisition of PMC’s assets the company counts to establish this line of business in U.K. as well, so as to accentuate overall profits going forward. The acquisition agreement also entails the recruitment of the IVA management and analytical team of PCM by ProAssurance. With the help of the veteran team of PCM, ProAssurance will find it convenient to cater efficiently to the U.K. consumer base.

ProAssurance boasts a strong cash position that allows it to undertake inorganic growth initiates like the one mentioned above. However, the company has been witnessing mounting interest expenses due to debt issuances for quite some time.

Escalating levels of expenses coupled with intense competition make us skeptical about any near-term extraordinary performance. Thus, we caution investors regarding the short-term prospects of the stock and suggest holding it for the long run. Hence we have a Zacks Rank #3 (Hold) on ProAssurance.

However, investors interested in the financial services industry may consider better-ranked stocks like American Express Co. (AXP - Analyst Report), Financial Engines, Inc. (FNGN - Snapshot Report) and Discover Financial Services (DFS - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).