It has been about a month since the last earnings report for Axis Capital Holdings Limited (AXS - Free Report) . Shares have added about 5.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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.
AXIS Capital Q4 Earnings Beat, Revenues Miss; Up Y/Y
AXIS Capital Holdings Limited reported fourth-quarter 2016 earnings per share of $1.14 that beat the Zacks Consensus Estimate of $0.93 by 23%. Also, earnings declined 7.3% from the year-ago quarter.
AXIS Capital’s net income declined 6.5% year over year to $1.48 per share.
Operating revenues of about $1.02 billion missed the Zacks Consensus Estimate of $1.06 billion. However, revenues increased 1.2% year over year.
Gross premiums written declined 8.6% year over year to approximately $730 million due to 0.8% lower premiums written in the Insurance segment and 34% decrease in reinsurance segment.
Net investment income soared nearly 20.9% to $95.5 million, fueled by changes in the fair value of alternative investments.
Total expense in the quarter increased 3.4% year over year to $852.3 million.
AXIS Capital’s underwriting income decreased 25% year over year to $66.3 million. Combined ratio deteriorated 510 basis points (bps) to 96.7%. Catastrophe and weather-related pre-tax net losses widened to $204 million from $100 million in the year-ago quarter.
Operating earnings of $4.48 per share increased 11.4% year over year. Operating revenues improved 2.6% over 2016 to $4 billion.
Insurance Segment: Gross premiums written increased 1% year over year owing to new business in accident, and health & property lines.
Net premiums earned remained flat year over year. Nonetheless, the metric inched up 2% on a constant currency basis driven by growth in premiums written, mainly in accident and health lines, offset by an increase in professional lines' ceded reinsurance programs.
Underwriting income of $6 million plummeted 76% from the year-ago quarter. Combined ratio deteriorated 410 bps to 98.6%.
Reinsurance Segment: Gross premiums written in the quarter decreased 34% year over year to $123 million, largely due to lower level of premiums written on a multi-year basis.
Net premiums earned were flat year over year as increase in gross premiums written was offset by the impact of the retrocessional cover with Harrington Re Ltd. as well as an increase in premiums ceded in the company’s catastrophe and property lines.
Underwriting income jumped 4.8% year over year to $60 million. Combined ratio deteriorated 440 bps year over year to 87.6%.
AXIS Capital exited the quarter with cash and cash equivalents of $1.2 billion, up 5.7% from the 2015-end level.
Cash flow from operations plunged 48% to $407 million.
As of Dec 31, 2016, diluted book value per share was $58.27, up 8% year over year.
Operating return on equity was 7.9% in 2016 compared with 7.7% in 2015.
Share Repurchase and Dividend Update
The company repurchased 10.5 million shares in 2016. The board of directors approved a share repurchase program of $1 billion, effective through Dec 31, 2017. AXIS Capital had $975 million remaining authorization under the common shares’ repurchase program up to Dec 2016. The company declared dividend of $1.43 per common share.
During 2016, AXIS Capital paid back $644 million, or 157% of operating income, to its shareholders via dividends and share repurchases. Share count was lowered by 11%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three downward revisions for the current quarter compared to one upward.
At this time, Axis Capital's stock has a subpar Growth Score of 'F', however its momentum is doing a lot better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 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.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.