Delphi Financial Misses Slightly

We maintain our Hold rating on the shares of Delphi Financial Group, Inc. (DFG - Analyst Report), a holding company whose subsidiaries provide non-medical insurance products and services.

The company’s second-quarter operating results missed our expectations by seven cents, mainly due to disappointing investment results. While the earnings were depressed for 2Q08 due to lower net investment income, Delphi’s premiums and fee income has been broadening over the last few quarters.

However, the company’s focus on small case markets, diversified product line, and customer base shields it from the recessionary market conditions. We believe that the recent share repurchases will boost its ROE [return on equity]. Even though the shares have retracted somewhat from their recent high, we think the positives have been generally factored into Delphi’s valuation multiples. Therefore, we believe shares will perform in-line with the overall market over the coming quarters.

Based on 2Q08 results and revised company guidance, we are lowering our 2008 and 2009 earnings expectation for this company to $3.05 per share and $3.65 per share, respectively, from $3.20 per share and $3.85 per share previously. At the current level, the shares of Delphi trade at 1.15 times its 2Q08 book value of $22.03 per share.

We are lowering our six-month price target to $27.10 per share down from $30.30 per share previously) which incorporates a price-to-book multiple of 1.15x to our estimated $23.55 per share at December 31, 2008.

Read the full analyst report on DFG