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State Auto Financial (STFC): Time to Dump from Portfolio?
On Aug 6, Zacks Investment Research downgraded State Auto Financial Corp. to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
State Auto Financial witnessed sharp downward estimate revisions after reporting disappointing second-quarter 2016 results.
On Aug 4, State Auto Financial reported loss per share of 69 cents, wider than the year-ago loss of 2 cents. This also compared unfavorably with the Zacks Consensus Estimate of a breakeven. The insurer missed expectations in each of the last four quarters.
The second quarter also suffered on account of storms and the ongoing adversities in the auto lines of business.
Expenses too escalated 11.9% on 17% higher losses and loss expenses and a 1.2% increase in acquisition and operating expenses.
Owing to exposure to catastrophes that occurred in the second quarter, State Auto Financial’s combined ratio deteriorated 860 basis points. Catastrophe losses accounted for 1310 basis points of the total loss ratio of 8150 basis points.
With respect to the balance sheet, cash and cash equivalent declined 8.8% at quarter end. Book value of $21.69 per share as of Jun 30, 2016 represents a decrease of 1.2% over Mar 31, 2016. This resulted from operating losses, though favorable investment valuations came as a respite. Return on equity also slumped to 0.3% from 12.2% in the year-ago quarter.
The Zacks Consensus Estimate for 2016 moved down 50% to 45 cents per share as all the estimates were revised lower over the last 7 days. For 2017, all estimates were revised down over the same time frame, dragging down the Zacks Consensus Estimate by 3.1% to $1.55 per share.
STATE AUTO FINL Price and Consensus
STATE AUTO FINL Price and Consensus | STATE AUTO FINL Quote
Stocks to Consider
Not all insurers’ stocks are performing as poorly as State Auto Financial. Some better-ranked stocks are Allied World Assurance Company Holdings, AG (AWH - Free Report) , National Interstate Corporation (NATL - Free Report) and NMI Holdings, Inc. (NMIH - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).
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