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Why Is XL Group (XL) Down 9% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for XL Group Ltd. (XL - Free Report) . Shares have lost about 9% 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.

XL Group Q2 Earnings Beat, Revenues Miss Estimates

XL Group Ltd’s second-quarter 2017 operating net income of $0.96 per share outpaced the Zacks Consensus Estimate by 7.9%. Earnings soared 159.5% year over year, primarily owing to the company’s solid performance and continued lower operating expenses.

Including non-recurring items, the net income skyrocketed 660% year over year to $1.14 per share.

Behind the Headlines

Total revenue of XL Group dipped 0.8% year over year to $2.74 billion due to lower net premiums earned. Also, revenues missed the Zacks Consensus Estimate by 1.7%.

Net premiums earned slipped 0.6% year over year to $2.5 billion.

Net investment income declined 3.1% year over year to $208.7 million.

Pre-tax cat losses, net of reinsurance and reinstatement premiums were $92.1 million. The reported figure was significantly narrower than a loss of $240.1 million in the year-ago quarter.

Total expenses of XL Group decreased 4.8% year over year to $2.5 billion owing to lower net losses and loss expenses incurred, operating expenses as well as interest expenses.

With respect to Property and Casualty operations, gross premiums written in the quarter inched up 0.7% year over year to $3.6 billion.

The insurance segment witnessed an improvement in premiums, primarily owing to growth in Political Risk, International Financial Lines and Global Risk Management. However, decreases in Global lines and International property and casualty lines partially offset this upside.

However, the reinsurance segment experienced deterioration in its premiums in the reported quarter due to a non-recurring treaty signed in the prior-year quarter. New business in this second quarter also offset cancellations within the said segment.

XL Group’s underwriting profit soared about 91% year over year to approximately $194.6 million. Combined ratio improved 370 basis points to 92.3% in the reported quarter.

Financial Update

XL Group exited the second quarter with cash and cash equivalents of $3.13 billion, down 8.6% from $3.43 billion at the end of 2016.

Notes payable and debt at the end of the quarter were $3.2 billion, up 21.1% from the year-end 2016.

As of Jun 30, 2017, diluted book value of XL Group was $42.15 per share, up 4.5% from Dec 31, 2016.

Share Repurchase Update  

In the second quarter, XL Group bought back approximately 6.0 million shares worth $250.1 million. As of Jun 30, 2017, XL Group had shares worth $650.0 million remaining under its authorization.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have moved lower during the past month. There have been two revisions lower for the current quarter compared to one higher.

XL Group Ltd. Price and Consensus

 

XL Group Ltd. Price and Consensus | XL Group Ltd. Quote

VGM Scores

At this time, XL Group Ltd.'s stock has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 suitable for momentum and value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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