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Here's Why You Should Retain AMERISAFE (AMSF) Stock Now

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AMERISAFE, Inc. (AMSF - Free Report) is well-poised to grow due to rising audit premiums and net investment income. Given the company’s experience in the high-hazard business, it expects to retain policyholders and attract new business in the future.

AMERISAFE, with a market cap of $993.5 million, is a leading specialty provider of workers’ compensation insurance, which markets and underwrites its insurance through subsidiaries. The company focuses on providing coverage to small to mid-sized employers engaged in hazardous industries. It primarily operates in trucking, logging, construction, agriculture, maritime and other industries.

Zacks Rank & Price Rally

AMERISAFE currently carries a Zacks Rank #3 (Hold). The company’s shares have gained 0.2% in the year-to-date period compared with the industry’s 2.2% rise.

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Return on Equity (ROE)

ROE, a measure reflecting how efficiently a company utilizes shareholders’ money, was 17.7% in the trailing 12 months, better than the industry’s average of 15.9%.

Rising Estimates

The Zacks Consensus Estimate for AMERISAFE’s 2023 earnings is pegged at $2.88 per share. It has witnessed one upward estimate revision in the past 30 days against one in the opposite direction. The company beat earnings estimates in each of the last four quarters.

The consensus estimate for 2023 revenues is pegged at $302.6 million, indicating 1.1% growth from the prior-year reported figure.

Business Tailwinds

Due to its vast experience as a provider of workers’ compensation insurance in hazardous industries and a disciplined risk selection approach, AMERISAFE fetches higher premiums. A rebounding economy, strong retention and enhanced agent relations are likely to support its new business growth. Strong audit premiums are expected to drive premium revenues in the future.

Net investment income is expected to gain from higher income from higher yields on fixed maturity securities and cash and cash equivalents. The metric increased 19.1% in the second quarter.

The company’s strong financial flexibility, with no debt and a solid operating cash flow, is impressive. In the first half of 2023, the company generated an operating cash flow of $20.7 million.

The company’s financial flexibility allows it to engage in shareholder-friendly moves. The company handsomely returns capital to investors through share repurchases and dividends. It did not repurchase any shares in the first half of 2023 but paid a quarterly cash dividend of 34 cents per share. Its dividend yield came in at 2.6%, higher than the industry average of 2.4%. As of Jun 30, 2023, $12.6 million was left under the authorized share buyback program.

A Risk to Keep an Eye On

There are a few factors that are impeding growth of AMSF. The company faces stiff market competition, which somewhat affects its pricing. Also, product concentration risks and elevated expenses levels are concerning.

Although total expenses decreased 7.9% year over year to $56.1 million in the second quarter, the expense ratio deteriorated. We expect total expenses to increase by 1.2% in 2023. This can affect its future operations. Nevertheless, a systematic and strategic plan will drive AMSF’s long-term growth.

Key Picks

Some better-ranked stocks in the Accident and Health insurance space are Employers Holdings, Inc. (EIG - Free Report) , Trupanion, Inc. (TRUP - Free Report) and Aflac Incorporated (AFL - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The consensus mark for Employers Holdings’ current-year earnings indicates a 10.2% year-over-year increase. Furthermore, the consensus estimate for EIG’s revenues in 2023 suggests 20.5% year-over-year growth.

The Zacks Consensus Estimate for Trupanion’s current-year earnings has improved 9.2% in the past 30 days. Also, the consensus mark for TRUP’s revenues in 2023 suggests 19.2% year-over-year growth.

The consensus mark for Aflac’s current-year earnings indicates a 12.2% year-over-year increase. The Zacks Consensus Estimate for AFL’s current-year earnings has improved 3.3% in the past 30 days.

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