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American Safety: A Strong Buy

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On Jun 13, Zacks Investment Research upgraded American Safety Inc. to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

American Safety has been witnessing rising earnings estimates on the back of strong first-quarter 2013 results, which included a 18.9% positive earnings surprise. Moreover, this property and casualty insurer delivered positive earnings surprises in 2 out of the last 3 quarters with an average beat of 1.99%.

The year-to-date return for the stock came in at 53.0%, way above the S&P 500’s return of 13.06%.

American Safety reported its first-quarter results on May 8, 2013. Net operating earnings per share came in at 44 cents per share surpassing the Zacks Consensus Estimate of 37 cents per share. Results also improved 15.8% year over year from 38 cents per share in the first quarter of 2012.

Top line improved 3.3% year over year to $72.3 million, driven by strong improvement in net premiums earned, net realized gains and fee income, partially mitigated by lower investment income.

During the quarter, American Safety repurchased 0.1 million shares for approximately $2.7 million to enhance investor confidence.

Additionally, on Jun 3, Fairfax Financial Holdings Limited announced a deal to acquire the outstanding shares of American Safety for $29.25 per share which was at a 22.1% premium to the closing price of American Safety as of May 31, 2013. The investment community responded positively to the news and share price of American Safety hit a 52-week high within a week of the announcement.

The Zacks Consensus Estimate for 2013 increased 5.3% to $1.58 per share as 1 of 2 estimates was revised higher over the last 30 days. The estimate also represents a whopping year-over-year increase of 650%. The Zacks Consensus Estimate for 2014 also increased approximately 3% to $1.73 as 1 of 2 estimates moved north over the last 30 days. The estimate translates into a year-over-year improvement of 9.5%.

Other Stocks to Consider

Among other insurers, Montpelier Re Holdings Limited , Platinum Underwriters Holdings Ltd. and Homeowners Choice Inc. (HCI - Free Report) carry a Zacks Rank #1 (Strong Buy) and are worth noting.

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