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Alleghany (Y) Up 8.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Alleghany (Y - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Alleghany due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Alleghany Q2 Earnings Beat Estimates, Revenues Fall Y/Y

Alleghany reported second-quarter 2020 adjusted income of 86 cents per share against the Zacks Consensus Estimate of a loss of $1.46 per share. The bottom line plunged 93.1% year over year attributable to soft performance at both its Insurance and Reinsurance segment.

Operational Update

Revenues declined 1.4% year over year to $2.2 billion on lower net investment income and noninsurance revenues. Net premiums written rose 2.2% year over year to $1.5 billion. Net investment income came in at $118.7 million, down 16.8% year over year, primarily attributable to reflect decreases in interest income due to low reinvestment yields on debt securities and lower yields on short-term investments and floating-rate debt securities.

Underwriting loss was $39.5 million against the year-ago quarter’s profit of $114.9 million. Total costs and expenses increased 6.1% to $2 billion. Alleghany Capital’s pretax earnings were $5.3 million, down 87.3% from the year-ago quarter.

Segment Update

Reinsurance Segment: Net premiums written declined 2.4% to $1.1 billion owing to an automobile-related premium rebates, decreases in the guaranty lines of business and the impact of changes in foreign currency exchange rates. Underwriting loss was $30.3 million against the year-ago quarter’s income of $75.9 million. Combined ratio deteriorated 1000 basis points to 102.9%, reflecting catastrophe losses, largely related to the pandemic.

Insurance Segment: Net premiums written increased 17.4% to $391.5 million, driven by growth at RSUI. Underwriting loss was $9.2 million against the year-ago quarter’s income of $39 million. The combined ratio of the reported segment deteriorated 2210 basis points to 102.9%.

Financial Update

Cash balance was $1.6 billion, up 40.2% from 2019 end level. Debt balance of $2 billion increased 15.2% from 2019-end level. Allegheny’s shareholder equity at the end of the second quarter was $8.5 billion, down 3.7% from 2019 end level. Book value per share was $590.85 as of Jun 30, 2020, down 0.8% from the level as of Dec 31, 2019.

As of Jun 30, 2020, the company had $583 million remaining under its share repurchase authorization.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -53.37% due to these changes.

VGM Scores

At this time, Alleghany has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Alleghany has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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