It has been about a month since the last earnings report for Assurant, Inc. (AIZ - Free Report) . Shares have lost about 6.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Assurant’s Q1 Earnings Beat Estimates, Improve Y/Y
Assurant's first-quarter 2017 net operating income of $1.87 per share surpassed the Zacks Consensus Estimate by 23.8%. Also, the bottom line improved 23% from $1.52 per share earned in the year-ago quarter.
One-time client recoverables and improved extended service contract profitability in Global Lifestyle resulted in the improvement. However, ongoing declines in lender-placed insurance in Global Housing partially offset the upside. The quarter also benefitted from lower reportable catastrophes, including favorable prior-period reserve development.
Total revenue plunged 20.8% year over year to $1.51 billion due to lower premiums earned as well as a decline in fees and other income, and net investment income. Moreover, the top line missed the Zacks Consensus Estimate of $1.62 billion by 6.9%.
Net investment income declined 11.1% year over year to $120.6 million.
Total benefits, losses and expenses decreased 26.2% to $1.3 billion, mainly due to a significant decline in policyholder benefits, selling, underwriting, general and administrative expenses and interest expenses.
Assurant has revised its reportable segments in keeping with its evolved global operating model that supported its multi-year transformation. As of fourth-quarter 2016, Assurant reported through four segments – Global Housing (formerly known as the Assurant Specialty), Global Lifestyle (formerly included in the Assurant Solutions), Global Preneed (formerly included in the Assurant Solutions) and Corporate & Other.
Net earned premiums, fees and others at Global Housing fell 7.9% year over year to $531.7 million, primarily due to anticipated lower placements and reduced premium rates in lender-placed insurance. However, growth in multi-family housing and new client revenues in lender-placed insurance partially offset the downside.
Net operating income decreased about 19% year over year to $61.9 million. Ongoing lender-placed insurance normalization and weaker performance in the mortgage solutions business led to the downside.
Net earned premiums, fees and others at Global Lifestyle declined 13.8% year over year to $804.9 million. The deterioration was primarily attributable to a change in program structure for a large service contract client in Connected Living implemented in the fourth quarter of 2016.
Net operating income of $52.4 million jumped 26.6% year over year. The upside was driven by $7.5 million of one-time client recoverables from Connected Living as well as credit insurance from actions taken to improve profitability in select international markets.
Net earned premiums, fees and others at Global Preneed grew 3.5% year over year to $44.2 million, primarily due to sales of policies written in prior years.
Net operating income soared 73.7% year over year to $9.9 million.
Net operating loss at Corporate & Other was $10.1 million, narrower than the year-ago quarter net operating loss of $13.9 million. Lower employee-related costs and higher investment income from increased assets at the holding company drove the improvement.
Assurant’s financial position remains strong with around $605 million in corporate capital as of Mar 31, 2017. Total assets dipped 0.5% to $29.6 billion as of Mar 31, 2017, from $29.7 billion at year-end 2016.
Share Repurchase and Dividends Update
The company’s total share buybacks and dividends amounted to $135 million in the first quarter. While share buyback totaled $105 million, dividend payout totaled $30 million.
The company spent about $38 million to repurchase an additional 0.4 million shares from Apr 1, through Apr 28, 2017. It now has $540 million remaining in the current repurchase authorization.
Assurant estimates net operating income (excluding reportable catastrophe losses) to remain flat with the 2016 level. This is primarily due to the anticipated profitable growth in fee-based, capital-light offerings (comprising Connected Living, multi-family housing and mortgage solutions) and vehicle protection. However, declines in lender-placed insurance and other legacy businesses are likely to limit the upside. Expense savings from enterprise transformation projects are expected to be reinvested in the business.
Assurant projects operating earnings per diluted share (excluding catastrophe losses) to grow in double-digits from 2016 owing to share buyback activity.
The company expects Global Housing to witness a year-over-year decline in its net earned premiums and net operating income, excluding reportable catastrophe losses. The ongoing lender-placed insurance normalization is anticipated to result in the decrease in the above-mentioned metric. However, expense savings and profitable growth in fee-based, capital light business is likely to partially offset the downside.
Global Lifestyle’s net operating income is likely to increase due to improved performance in Connected Living, fueled by mobile as well as higher contributions from vehicle protection and expense efficiencies. The decline in credit insurance and legacy North American retail clients is likely to continue. The company anticipates revenues to fall, primarily owing to a change in program structure for a large service contract client. In addition, the company estimates net earned premiums to decrease by about $500 million from 2016 due to reduction in expenses. This apart, the company might witness a rise in net earned premiums and fee income owing to growth in Connected Living and vehicle protection globally. However, results are likely to be impacted by foreign exchange.
Global Preneed is anticipated to experience an increase in fee income and earnings, mainly due to sales growth across North America due to the company’s alignment with market leaders and operational efficiencies.
Full-year net operating loss of about $70 million at Corporate & Other is projected to remain flat with the 2016 level. This is because the company’s continued expense-reduction initiatives are likely to be offset by investments to support its multi-year transformation.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There has been two moves down in the last two months.
Assurant, Inc. Price and Consensus
At this time, the stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. 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 momentum investors than value 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 looking for an inline return from the stock in the next few months.