Hallmark a Hold on Valuation

We maintain our Hold rating on Hallmark Financial Services Inc. (HALL - Snapshot Report), as we anticipate 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. However, it is difficult to expect the shares to retest their recent priced-to-perfection level over the near-to-medium term.

Given the soft market conditions, we expect HALL to experience a reduction in writing premium, thereby causing a reduction in profit margins and revenues. Accordingly, increased competition and rate pressure have challenged premium volume growth by the Standard Commercial Segment and really do not see the potential for premium volume improvement in 2008.

Following a review of the first-quarter results, we are fine-tuning our 2008 and 2009 earnings expectations to $1.37 per share and $1.40 per share, respectively, from $1.36 and $1.45.

At the current level, the shares of Hallmark trade at 1.31x the 1Q08 book value of $8.93 per share. In addition, the quantitative Zacks Rank for HALL is currently 3, indicating no clear directional pressure on the shares over the near term. Our new six-month price target of $12.95 down from $13.90, incorporates a price-to-book multiple of 1.35x on our estimated book value of $9.60 per share at September 30, 2008.

Read the full analyst report on HALL