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W.R. Berkley (WRB) Down 3.7% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for W.R. Berkley Corporation (WRB - Free Report) . Shares have lost about 3.7% 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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

W.R. Berkley Q2 Earnings & Revenues Miss Estimates

W.R. Berkley’s second-quarter 2017 operating income of $0.65 per share missed the Zacks Consensus Estimate of $0.75 by 13.3%. The bottom line also deteriorated 20.7% year over year.

The company witnessed improved revenues and slightly lower expenses in the reported quarter. However, reinsurance reults remained affected by a competitive environment, which mainly resulted in the decline in earnings. Nonetheless, the company witnessed growth in select areas where margins were attractive alongside gaining traction in some of its new ventures. Also, the company recorded improved investment results in the quarter. Plus, it continues to witness new opportunities in specialized areas.

Notably, the company expects the previously announced pre-tax gain of about $120 million from the sale of a real estate investment to contribute to its third quarter results.

Including net realized investment gains of $0.20 per share, net income remained unchanged from the year-ago quarter and stood at $0.85 cents per share.

Behind the Headlines

W.R. Berkley’s net premiums written for the quarter were $1.6 billion, down 4.8% year over year. Lower premiums written at both the Insurance and Reinsurance segments resulted in the downside.

Operating revenues came in at $1.70 billion, up 0.9% year over year. However, the top line missed the Zacks Consensus Estimate of 1.77 billion.

Investment income improved 4.8% year over year to $135.3 million.

Total expenses dipped 0.6% to $1.7 billion, primarily due to lower expenses from non-insurance businesses.

Consolidated combined ratio (a measure of underwriting profitability) deteriorated 20 basis points (bps) year over year to 95.1%.

Segment Details

Net premiums written in the Insurance segment dipped 1.7% year over year to $1.4 billion in the quarter. This decrease was attributable to lower premiums written under other liability, short-tail lines and professional liability. Combined ratio in this segment improved 10 bps year over year to 94.1%.

Net premiums written in the Reinsurance segment plunged 29.5% year over year to $126.1 million due to substantially lower premiums written under casualty reinsurance and property reinsurance. Combined ratio declined 350 bps to 104.4%.

Financial Update

W.R. Berkley exited the second quarter with total assets worth $23.9 billion, up 2.8% from the year-end 2016.

Book value per share rose 4.7% from the year-end 2016 to $43.59 as of Jun 30, 2017.

Cash flow from operations plunged 39.5% year over year to $115.9 million.

The company’s return on equity deteriorated 90 bps to 8.6%.

Dividend Update

During the second quarter, the company approved of a special dividend of 50 cents per share, amounting to $61 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.

W.R. Berkley Corporation Price and Consensus

VGM Scores

At this time, W.R. Berkley's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

The company's stock is suitable solely for value investors based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.




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