Recently, AXIS Capital Holdings Limited (AXS) declared that it will redeem all of its outstanding preferred shares which consist of 4 million of its 7.25% Series A Preferred Shares, par value $0.0125 per share and liquidation preference $25 per share. It represents $100 million in aggregate liquidation preference as on Jun 19, 2013. The redemption price is $25 per Preferred Share plus all declared and unpaid dividends through the redemption date.

Last week, AXIS Capital priced an offering of 8 million shares of 5.50% Series D Preferred Shares, par value $0.0125 per share and a liquidation preference at $200 million or $25 per share. Furthermore, AXIS Capital granted a 30-day option to the underwriters to buy up to 1.2 million additional Series D Preferred Shares. The proceeds from this $200 million issuance were deployed to redeem the outstanding Series A preferred securities and for general corporate purposes, including share buybacks.

Concurrent to the announcement, credit rating agency, A.M. Best allotted a debt rating of “bbb–” to the Series D non-cumulative redeemable preferred shares of AXIS Capital with a positive outlook. Fitch Ratings allotted a 'BBB' rating to the issue.

AXIS Capital reported first quarter 2013 earnings of $1.92 per share which breezed past the Zacks Consensus Estimate of $1.19 per share. Following the solid first quarter, most of the estimates were revised upward. The Zacks Consensus Estimate for 2013 moved to $5.05, representing a year-over-year improvement of 59.3%. For 2014, the Zacks Consensus Estimate is currently pegged at $4.65 per share, representing a year-over-year decline of 7.96%.

Among others in the industry, Homeowners Choice Inc. (HCI) declared cash dividends of 5.833 cents per share on its Series A Cumulative redeemable preferred shares in Mar 2013, for the months ending Mar 31, Apr 30 and May 31, 2013.

AXIS Capital currently carries a Zacks Rank #1 (Strong Buy). Among other stocks, Montpelier Re Holdings Ltd. (MRH) and American Safety Insurance Holdings Ltd (ASI) share the same Zacks Rank and appear impressive.

Shares of Owens-Illinois, Inc. (OI) reached a new 52-week high of $29.16 on Tuesday, May 21, 2013. The new high was primarily driven by expected benefits from higher pricing, modest improvement in volumes, restructuring actions, cost savings as well as its growth strategy in South America.

This manufacturer of glass containers has delivered a robust one-year return of about 48.69% and year-to-date return of about 35.83%. Average volume of shares traded over the last three months was approximately 1.3 million shares.

Owens-Illinois has been delivering positive earnings surprises over the past four quarters with an average surprise of 6.60%. This Zacks Rank #3 (Hold) stock has a market cap of $4.75 billion and a long-term expected earnings growth rate of 9.05%.

Owens-Illinois’ Strengths

Owens-Illinois will benefit from the restructuring actions undertaken in North American and Asia-Pacific regions in 2012, global structural cost reductions as well as its growth strategy in South America. Furthermore, a new furnace in Brazil in late 2012 will lead to volume growth and logistics savings in the region.

Owens-Illinois has embarked on a multi-year asset optimization program in Europe, which includes elimination of underperforming assets, and reduction of idle capacity. The company outlines investment in low cost additional capacity and enhancement in quality, speed and flexibility. This is expected to lead to improvements in profits in Europe in the second half of 2013.

Weak 1Q13 Earnings, But Improved Outlook

Owens-Illinois’ first-quarter 2012 earnings per share of 60 cents were down 18% from the year-ago earnings of 73 cents per share, but up 7% from the Zacks Consensus Estimate of 56 cents. Improved operating profits in South America and Asia-Pacific were offset by weak economic conditions in Europe.

Despite a weak first quarter dragged down by Europe, the company expects strong contribution from the emerging regions and stable market conditions in North America to continue to support growth while macroeconomic uncertainty in Europe will remain a deterring factor. The company expects overall modest volume growth in 2013, and higher prices to counter higher material costs. Adjusted earnings are expected in the range of $2.60 to $3.00 per share.

The Zacks Consensus Estimate for 2013 is currently at $2.78 per share, reflecting a 5.23% year over year growth and within the company’s guidance.

Other Stocks to Consider

Other stocks in the containers industry that are currently performing well and have a good visibility include Berry Plastics Group, Inc. (BERY), Graphic Packaging Holding Company (GPK) and UFP Technologies, Inc. (UFPT) with a Zacks Rank #2 (Buy).

The board of directors of W. R. Berkley Corp. (WRB) has approved an 11% dividend hike representing new annualized rate of 40 cents per share. The first increased dividend, at a quarterly rate of 10 cents, will be paid on Jul 2, 2013 to stockholders of record as of Jun 11, 2013.

This property and casualty insurer  has maintained its track record of increasing dividend over the years. The recent dividend hike represents the eighth consecutive increase from 12 cents paid in 2005. 

The dividend hike is primarily supported by W.R. Berkley’s strong balance sheet, low debt ratio and its ability to generate healthy cash flow.

During the same time last year, the company had approved a 12.5% hike in its annual dividend.

Nevertheless, W.R. Berkley is one such company in the U.S. property and casualty industry, with a low dividend yield. Following the increased dividend, the stock will provide  a dividend yield of 0.80%, which is much lower when compared with its peers. 

W.R. Berkley has started a number of new specialty units since early 2006 in order to position itself for the turn of the insurance cycle. It was on account of these units along with moderate premium increases that Berkley witnessed a growth in net premium written in recent years.

W.R. Berkley is also witnessing a continuous improvement in the insurance market. We are fairly positive towards W.R. Berkley’s stock at this moment. Shareholder returns will continue to be positive due to dividend payouts, share repurchases and business growth. By virtue of its high return on equity, few intangibles, low leverage, sound underwriting and limited exposure to volatility, the stock is uniquely poised to benefit from a turn in the cycle.

We believe these positive fundamentals will position the company to continue to pay dividend in future.

Among other property and casualty insurers, recently the shareholders of ACE Limited (ACE), at the extraordinary general meeting held on May 16, 2013, approved the board’s proposal to hike the quarterly dividend by 4% to 51 cents.

Also, tthe board of directors of Assurant Inc.  (AIZ) authorized an increase of 19% in its dividend. The company will now pay a quarterly dividend of 25 cents per share.

W.R. Berkley currently retains a Zacks Rank #3 (hold). Montpelier Re Holdings Ltd. (MRH), carrying Zacks Rank #1 (Strong Buy) is worth considering.

Medical technology major Boston Scientific Corporation (BSX) was hit by another patent tiff when Germany-based OrbusNeich Medical Inc. and its subsidiary, OrbusNeich Medical GmbH enforced the seizure of more than 190 stent systems from the company.

The latest dispute challenging Boston Scientific is associated with the patent infringement proceedings against the company in the Dusseldorf Regional Court. According to OrbusNeich, Boston Scientific violated the preliminary injunction of the Court which prohibits it from marketing and selling certain line of stents in Germany.

The affected stent lines include Small Vessel, Small Workhorse and Workhorse Stents under the company’s PROMUS Element, PROMUS Element Plus, OMEGA, TAXUS Element, SYNERGY and Promus PREMIER portfolio. According to the Court’s Apr 30, 2013 ruling, the geometric pattern of these affected stent lines infringe OrbusNeich’s patent EP1341482.

The stent systems were found at the premises of Boston Scientific’s German subsidiary Boston Scientific Medizintechnik GmbH in Ratingen on May 15. OrbusNeich has filed parallel patent infringement lawsuits in The Netherlands and Ireland. OrbusNeich is also seeking more definitive action in the form of a permanent injunction and damages.

Last week, Boston Scientific received a patent infringement complaint from Vascular Solutions Inc. (VASC), a provider of medical devices for coronary and peripheral vascular procedures. Vascular Solutions has filed the complaint in the U.S. District Court for the District of Minnesota.

According to Vascular Solutions, Boston Scientific infringed three patents owned by it. The complaint alleges, among other things, that the production and sale of Guidezilla guide extension catheter by Boston Scientific, which gained the 510(k) clearance from the U.S. Food and Drug Administration (FDA) in Mar 2013, infringes the patent landscape of Vascular Solutions’ GuideLiner catheter.

Amid several patent issues, Boston Scientific carries a Zacks Rank #3 (Hold). Other medical sector stocks that warrant a look are Conceptus Inc. (CPTS) carrying a Zacks Rank #1 (Strong Buy) and Becton Dickinson and Company (BDX), carrying a Zacks Rank #2 (Buy).
 

Sales worries continue for Caterpillar Inc. (CAT) as worldwide sales of the construction and mining equipment behemoth declined 9% for the three months ending Apr 2013. This marked the fifth consecutive month of declining sales following disappointing first quarter 2012 results.

Caterpillar sales started their downhill journey in Dec 2012, hurt by tougher year-earlier comparisons and rising inventories of unsold equipment. Caterpillar had earlier witnessed negative sales growth in Apr 2010 and since then enjoyed a stint of positive growth, benefiting from strong equipment demand both domestically as well as in the emerging markets.

So far in 2013, Caterpillar’s sales have declined 4% in Jan, 13% in Feb and 11% in March. In Apr 2013, Caterpillar witnessed declines across all regions barring Latin America, which held its own with 28% growth. Latin America has shown a considerable improvement in April compared to the 3% growth in both Jan and Feb and 12% rise in March. Demand for construction and infrastructure projects has spurred equipment demand in Brazil as it prepares for the 2014 World Cup and 2016 Olympic Games.

In North America, the company's largest market in terms of geography, the sales decline of 18% in Apr was the lowest so far in 2013. In Asia, sales declined 20%, in tandem with the decline of 26% in Feb and 24% in March pulled down by weak demand from China. Sales in EAME registered a drop of 3% from the high single digit decline in the preceding two months, but still disappointing compared to the 1% climb in Jan. In ROW (Rest of the World) sales dipped 5%.

Reciprocating & Turbine Engine Retail sales went down 5% year over year globally, an improvement from the 7% decline in Jan and Feb and 6% in March. Among the end markets, sales to the transportation sector were the only bright spot with 8% growth. Other markets remained in the red with the sales to the power sector being the worst affected with a 11% decline followed by industrial and petroleum sector dipping 7% and 6%, respectively.

Caterpillar’s first quarter results were also disappointing as revenues dipped 17% year over year to $13.2 billion and earnings per share slumped 45% to $1.31, primarily due to reduced mining demand and decline in inventory. Citing weak demand for its mining equipment, Caterpillar has trimmed its sales outlook to a range of $57 to $61 billion from the previous range of $60 to $68 billion. Caterpillar now expects to earn $7.00 per share in 2013, down from the earlier projection of earnings between $7.00 and $9.00 per share.

Even though Caterpillar will benefit from the recovery in the U.S. construction sector, the recent loss of sales momentum, declining backlog, negative impact of the European debt crisis and slowdown in economic growth in China remain concerns. Caterpillar currently retains a Zacks Rank #4 (Sell). Other stocks in the industrial products sector with a favorable Zacks Rank are H&E Equipment Services Inc. (HEES), Alamo Group, Inc. (ALG) and CNH Global NV (CNH), all carrying Zacks Rank #2 (Buy).

A.M. Best Co. has confirmed the Financial Strength Rating (FSR) and Issuer Credit Rating (ICR) of Montpelier Reinsurance Ltd. (Montpelier Re). Montpelier Re is a wholly owned subsidiary of Montpelier Re Holdings Limited (MRH). The rating agency provided an FSR of “A” (Excellent) and ICR of “a” to Montpelier Re. It also affirmed the ICR of “bbb” and debt ratings of Montpelier Re Holdings. All the ratings carried a stable outlook.

The rating affirmation came on the back of a number of factors. These include the company’s solid risk-adjusted capitalization, superb long-term operating performance, a well-diversified business portfolio, strong competitive position, a management team with much expertise and strong enterprise risk management structure.

However, the rating agency pointed out that being a global property catastrophe focused reinsurer, the company is vulnerable to low frequency, high severity losses which partially offsets the positives. Nevertheless, this aspect is taken care of by the company’s robust risk-adjusted capital levels.

The stable outlook assigned on the ratings of Montpelier Re was on account of the company’s financial flexibility, capital market accessibility and favorable rate environment in its targeted line of business.

A.M. Best stated that an upward revision in the ratings or outlook can take place if the company continues to maintain strong risk-adjusted capital levels and consistently delivers strong operating profitability compared to its peers.

Rating affirmations from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining the creditworthiness in the market. We believe that the company’s present score with the credit rating agencies will help it write more business going forward.

Earlier in Sep 2012, Fitch Ratings upgraded the ratings on Montpelier Re Holdings and its subsidiary, Montpelier Re. The senior unsecured debt ratings of MRH was upgraded to “BBB+” from “BBB” and the Insurer Financial Strength (IFS) rating of Montpelier Re was upgraded to “A” from “A–”.

Montpelier currently carries a Zacks Rank #1 (Strong Buy). Among others in the industry, AXIS Capital Holdings Limited (AXS), Global Indemnity plc (GBLI) and Homeowners Choice Inc. (HCI) carry the same Zacks Rank and appear impressive.

Global marketing and corporate communications company Omnicom Group Inc. (OMC) recently declared a dividend of 40 cents per share or $1.60 on an annualized basis. The second quarter 2013 dividend is payable on Jul 11 to shareholders of record as of Jun 14.

Based on the closing price of $63.00 on May 21, 2013, the dividend affirms a yield of 2.5%. A steady dividend payout facilitates the long-term strategy of Omnicom to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company’s most attractive features.

The company had earlier hiked its dividend in first quarter 2013, when it raised the quarterly dividend payout from 30 cents to 40 cents per share or from $1.20 to $1.60 on an annualized basis.  Prior to that, Omnicom raised its quarterly dividend in first quarter 2012 when it raised the quarterly dividend payout from 25 cents to 30 cents per share, in first quarter 2011 from 20 cents to 25 cents per share, and in first quarter 2010 from 15 cents to 20 cents.

The company also has a share repurchase program in place, under which it repurchased shares worth $832 million in 2012. Omnicom has consistently returned significant cash to its shareholders. In the 10-year period from 2002 to 2012, Omnicom distributed over 99% of net income to shareholders through dividends and share repurchases.

The company also has a healthy liquidity position. Omnicom generated free cash flow of $302.1 million in first quarter 2013. Cash and short-term investments aggregated $2,090 million at quarter-end compared to $1,509 million in the prior year. Return on equity (ROE) for twelve months ended Mar 31, 2013 was 29.6% compared to 26.9% for the same period in the preceding year.

Omnicom has a strong track record of winning new clients and receiving additional deals from the existing ones. The company’s business mix is well diversified geographically and benefits largely from the growing markets. In addition, the company’s efforts in maintaining controlled expenses and strong global reputation are commendable.

Omnicom presently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include WPP plc (WPPGY) carrying a Zacks Rank #1 (Strong Buy), and Huron Consulting Group Inc. (HURN) and ICF International Inc. (ICFI), each carrying a Zacks Rank #2 (Buy).

On May 21, we downgraded our long-term recommendation on Safeway Inc. (SWY) to Neutral from Outperform as this North American food and drug retail giant is showing signs of sluggish growth. The stock carries a Zacks Rank #3 (Hold).

Why the Downgrade?

On Apr 25, Safeway reported a weak first quarter which lagged our expectations. Despite earnings growth of 16.7%, adjusted earnings of 35 cents missed the Zacks Consensus Estimate by a penny. Revenues stood at about $10 billion, flat year over year, trailing the Zacks Consensus Estimate of $10.2 billion.

Margins were under pressure in the first quarter. Despite the benefit of New Year sales, identical store (ID) sales (excluding fuel) inched up 1.5% from the year-ago quarter. ID sales growth was negated by the disposition of Genuardi’s stores in 2012 and soft fuel sales.

On the positive side, Safeway gained market share with rising uptake of the “Just for U” loyalty program. We are encouraged by the company’s working plan to save costs and expand foothold in the U.S. healthcare market. The recent initiative of the sale of a minority stake in its subsidiary Blackhawk Network Holdings (HAWK) should support improve Safeway’s focus on mainstream retail business.

However, a high debt level and lower income on account of Blackhawk offering adds to our concern. The company also faces a tough competitive landscape with other players recording healthy sales growth. While improving macroeconomic conditions are likely to boost growth for Safeway, any near-term comfort from ongoing headwinds is unlikely.

Other Stocks to Consider

While we have a neutral disposition on Safeway, other stocks such as Carrefour SA (CRRFY) and The Kroger Co. (KR), carrying a Zacks Rank #2 (Buy) are worth considering. 

On May 17, we downgraded our recommendation on manufacturers of metal products for the North American non-residential construction industry, NCI Building Systems Inc. (NCS) from Neutral to Underperform. The downgrade followed its wider-than-expected loss of the first quarter and its announcement of an expected second quarter loss as well as other concerns like volatility of steel prices, dependence on few steel suppliers, and uncertainty regarding sequestration.

Why the Downgrade?

NCI Building reported loss per share of 19 cents in the first quarter of 2013 due to severe weather conditions, product mix, additional costs for the ramp-up of the Middletown coatings plant, and additional training required for employees.

NCI Building has provided preliminary results for the second quarter of fiscal 2013 (ending Apr 28, 2013). Even though revenues are expected to be up 17% year over year to approximately $293 million, adjusted EBITDA is projected to be in the range of $10 million to $11 million. This is expected to lead to a per share loss for the quarter.

NCI Building recognized additional expense in the first quarter to train skilled manufacturing workers (such as welders) and expects to do the same in the second quarter of fiscal 2013 as well, affecting margins. Furthermore, sequestration uncertainty remains an overhang.

One of the important raw materials for NCI Building is steel and it is considerably influenced by steel prices. The steel industry is cyclical in nature and steel prices remained highly volatile in recent years. The prices may remain volatile in future causing margin headwinds.

For the first quarter of fiscal 2013, steel accounted for 70% of its cost of sales and  a 1% change in the cost of steel  would have led to a pre-tax impact on cost of sales of approximately $1.7 million, had such costs not been passed on to the customers. Given the competitive environment and the costs of other alternative building products, it could restrict the company’s ability to pass on these higher costs. Furthermore, reliance on a few steel suppliers could make NCI Building more vulnerable to supply disruptions.

Other Stocks to Consider

Other stocks to consider in the same industry with a favorable Zacks Rank are Chicago Bridge & Iron Company N.V. (CBI), James Hardie Industries plc (JHX), and PGT, Inc. (PGTI) all of which carry a Zacks Rank#2 (Buy).

Recently, CNO Financial Group Inc. (CNO) amended its senior secured credit facility to reduce the interest rate. The company opted for the amendment at the beginning of May, 2013.

The primary alterations incorporated in the senior secured credit facility include amended pricing and mandatory prepayment modifications.

Under the pricing amendment, CNO Financial re-priced the $225 million four-year term loan to LIBOR plus 2.25% with a LIBOR floor of 75 basis points from LIBOR plus 3.25% with a LIBOR floor of 100 basis points, representing an overall decline of 125 basis points. The re-pricing also included an overall 125 basis points decline in the $406.2 million six-year term loan to LIBOR plus 2.75% with a LIBOR floor of 100 basis points from LIBOR plus 3.75% with a LIBOR floor of 125 basis points.

Revision of the mandatory prepayments resulted from any Restricted Payments, including share buybacks and dividends. The prepayment modifications include three principal changes. The first change pertains to a 100% prepayment for every $1 of Restricted Payments, provided that the debt-to-capital ratio is greater than 25% (changed from the previous limit of 22.5%). Second, a 33.3% prepayment is to be made for every $1 of Restricted Payments, provided that the debt-to-capital ratio is greater than equal to 20% but less than or equal to 25% (changed from a minimum and maximum limit of 17.5% and 22.5% respectively). Finally, the amendment provides for a no prepayment option if the debt-to-capital ratio is less than or equal to 20%, changed from a prior limit of 17.5%.

Apart from these changes, other necessary modifications were also made to provide additional financial flexibility.

Interest expense of CNO Financial declined 5.2% year over year to $27.3 million in the first quarter of 2013. The transaction is expected to reduce the annual cash interest expense further by approximately $8 million and provide greater flexibility in managing the excess capital. The annual interest expense recognized in earnings is expected to be reduced by $6 million, inclusive of the amortization and transaction related costs. Moreover, CNO Financial is expected to incur a pretax charge of nearly $2 million in the second quarter of 2013.

The principal balance of CNO Financial’s Senior Secured credit facility is $631 million; there was no alteration in the current amortization schedule.

As a result of the company’s strong credit fundamentals and operating performance, credit rating agency Standard & Poor’s upgraded the Issuer Credit Ratings (ICR) and senior secured debt ratings of CNO financial to “BB-“from “B+” in the beginning of the month. All the aforesaid amendments are consistent with the ratings upgrade and CNO Financial’s solid performance.

CNO Financial currently carries a Zacks Rank #3 (Hold). Among others in the industry, Assured Guaranty Limited (AGO), Eastern Insurance Holdings Limited (EIHI) and Kemper Corporation (KMPR) carry a favorable Zacks Rank #1 (Strong Buy) and are worth noting.