CastlePoint Holdings Downgraded

Considering the intraday price of $13.45 per share, we are lowering our
recommendation on the shares of CastlePoint Holdings (CPHL) to a Hold from a Buy. Our action is in response to the approximate 30% increase in the share price since our December 1, 2008 report and the limited upside potentially if acquired by Tower Group (TWGP - Analyst Report).

We have adjusted our FY08 and FY09 earnings expectations to $1.32 per share and $1.95 per share, respectively, from $1.38 per share and $2.00 per share previously. At the intraday price of $13.45 per share, the shares of CastlePoint trade at 1.34x the 3Q08 book value of $10.04 per share.

With the shares of TWGP trading on average of $25.85 per share over the past 15 trading days, the potential for the shares of CPHL will be acquired at $13.00-14.05 per share seems reasonable. As such, we would anticipate there is limited upside -- about 4.5% remaining at best. Therefore, we think it is appropriate to moderate our rating on the shares of CPHL.

In addition, the quantitative Zacks rank for CPHL is "3," indicating no direction propensity for the shares over the near term. Short interest ratio remains unchanged at 3.7 days versus 4.0 days previously.

Read the full analyst report on CPHL

Read the full analyst report on TWGP

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