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Why Should You Steer Clear of AMERISAFE (AMSF) Right Now?

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AMERISAFE, Inc. (AMSF - Free Report) has been suffering a weak investment income and declining free cash flows.

Over the past 30 days, the stock has witnessed its 2022 and 2023 earnings estimates move 19.3% and 18.5% south, respectively, year over year. This is indicative of brokers’ pessimism on the stock.

The accident and health insurance specialty provider of workers' compensation insurance focused on small to mid-sized employers.

In a year’s time, AMSF shares have shed 19.8% of value against its industry’s growth of 22%.

Zacks Investment Research
Image Source: Zacks Investment Research

What’s Bothering the Stock?

In the last reported quarter, its results were impacted by declining rates that induced poor net premiums earned. Escalating costs are another reason. Total expenses of $76.4 million rose 45.3% year over year due to higher loss and loss adjustment expenses incurred as well as increased underwriting and other operating costs.

Catastrophic claim reported in the fourth quarter of 2021 dampened AMERISAFE’s underwriting results.

Its revenues have decreased since 2015 sans 2018. In 2021, its top line fell 6.9% year over year due to lower net premiums earned, which declined 9.3% from the prior-year’s reading. Its revenues will remain under pressure going forward as well due to concentration in workers’ compensation insurance line.

Investment income contributes to AMSF’s net income. Though AMERISAFE consistently increased its investment income until 2019, the same declined 9.6% and 13.4% on a year-over-year basis during 2020 and 2021, respectively. This was mainly due to weak investment yields on fixed-income securities.

Its investment income is supposed to remain stressed due to the low-interest rate environment.

AMSF is exposed to product concentration, which continues to bother the company. Moreover, premium rates in the workers’ compensation market have remained soft over the quarters, which have been hurting its premium growth.

AMERISAFE also witnessed declining cash flows for the last four years. In the trailing 12-month period, free cash flows plunged 41.2% to $37 million, reflecting persistent weakness in AMERISAFE's operations.

The consensus mark for 2022 earnings indicates a downside of 18.44% while the same for revenues implies a slip of 4.23% from the corresponding year-ago reported figures.

AMSF holds a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Some better-ranked stocks in the insurance space are Horace Mann Educators Corporation (HMN - Free Report) , Arch Capital Group Ltd. (ACGL - Free Report) and Berkshire Hathaway (BRK.B - Free Report) .

While Horace Mann sports a Zacks Rank #1 (Strong Buy), Arch Capital Group and Berkshire Hathaway carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horace Mann’s earnings surpassed estimates in each of the last four quarters, the average being 22.80%. The Zacks Consensus Estimate for HMN’s 2022 earnings suggests an improvement of 1.1%, while the same for revenues suggests growth of 1% from the respective year-ago reported figures. The consensus mark for Horace Mann's 2022 earnings has moved 8.4% north in the past 60 days.

The bottom line of Arch Capital Group outpaced earnings estimates in all the last four quarters, the average being 35.84%. The Zacks Consensus Estimate for ACGL’s 2022 earnings has moved 0.2% north in the past seven days. Arch Capital Group has a Value Score of A. The Zacks Consensus Estimate for ACGL’s 2022 earnings suggests an improvement of 26.26% from the year-ago reported figure.

Berkshire Hathaway’s earnings surpassed estimates in three of the trailing four quarters (missing the mark in one), the average surprise being 11.86%. The Zacks Consensus Estimate for BRK.B’s 2022 earnings suggests an improvement of 6.1% from the year-ago reported figure.

Arch Capital Group and Berkshire Hathaway’s stocks have gained 22.7% and 34%, respectively, in a year, while shares of Horace Mann have lost 2.8%.