ProAssurance Corporation (PRA - Free Report) has been recently witnessing downward revisions. The stock has seen the Zacks Consensus Estimate for 2018 earnings being revised 11% downward. For 2019, our consensus estimate has moved 1.6% south.
The consensus mark for current-year earnings also represents a year-over-year decline of 6.9%, reflecting analysts’ pessimism on the stock.
Shares of ProAssurance have also underperformed the industry. The stock has lost nearly 18% in a year’s time versus the industry’s rally of 15.2%.
The stock has a Zacks Rank #4 (Strong Sell) and an unimpressive Growth Score of D. Back-tested results show that stocks with a favorable Growth Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy), comfortably outperform other stocks.
Additionally, the stock’s valuation looks expensive at the current level. Looking at the company’s Price-to-Book (P/B) ratio, investors may not want to pay any further premium. Its current trailing 12-month P/B ratio of 1.6 lies above the industry average of 1.4.
ProAssurance has been persistently witnessing volatility in premium retention pertaining to its physician business, stemming from a stiffer competition. Although retention rate improved slightly in 2017 after a decline in 2016, the continuous reduction in insured client base is likely to weigh on the company’s premiums. This in turn also poses a threat to reducing top-line growth. Revenues of the company have already dipped 0.5% in 2017 on lower premiums.
The company’s investment portfolio, primarily consisting of fixed income securities, has suffered on a sustained soft interest rate environment in the recent past. Also, net investment income declined at 7% average rate over the last five years, primarily due to a fall in the fixed income portfolio. Infact, the interest rate hikes during 2017 have not been able to improve the scenario. Declining net investment income is likely to continue affecting the company’s revenue base going forward.
In addition, higher underwriting, policy acquisition and operating expenses have been adversely impacting the company. Expenses rose 9.5% over the last five years inducing net margin contraction, which declined 2610 basis points.
The company’s heavy debt burden also bothers. Over the last five years, its debt-to-equity ratio has deteriorated. Rising debt also increased interest burden that again weighs heavily on the margins.
Choosing the Stocks
While ProAssurance doesn’t appear a viable, attractive pick at present, there are a few good solid stocks in the insurance space, promising greater returns..
We have boiled down to three lucrative stocks with potential to enhance one’s portfolio with the help of the Zacks Stock Screener. These stocks have seen northbound estimate revisions over the last 60 days, triggering to a bullish Zacks Rank.
Headquartered in Chicago, IL, CNA Financial Corporation (CNA - Free Report) offers commercial P&C insurance products, mainly across the United States.
The company has a Zacks Rank #1 (Strong Buy) and an impressive Value Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 7.2% upward over the last 60 days.
The Zacks Consensus Estimate for both 2018 and 2019 reflects year-over-year growth of 19.5% and 1.5%, respectively. The expected long-term growth rate is pegged at 5%.
Shares of CNA Financial have gained 14% in a year’s time, outshining ProAssurance. However, the shares have underperformed the industry.
The stock is also undervalued right now. Its trailing 12-month P/B ratio is pegged at 1.1, lower than the industry average. Infact its Value Score of B combined with bullish Zacks Rank makes the stock an attractive investment bet currently.
Headquartered at Cleanwater, FL, Heritage Insurance Holdings, Inc. (HRTG - Free Report) provides personal and commercial residential insurance. The company sports a Zacks Rank of 1.
The stock has seen the Zacks Consensus Estimate for current-year earnings being moved 13% north over the last 60 days.
The estimate revision for the ongoing and next year represents a year-over-year rise of 70% and 11.5%, respectively.
The stock’s trailing 12-month P/B ratio is pegged at 1, lower than the industry average, indicating the stock’s relatively cheaper value at the moment.
Shares of Heritage Insurance have jumped 23.6% in a year’s time, outpacing the industry it belongs to as well as the ProAssurance stock.
Cincinnati, OH-based American Financial Group, Inc. (AFG - Free Report) engages primarily in property and casualty insurance with a focus on specialized commercial products for businesses. The company is Zacks #2 Ranked and has a Value Score of B. Backtested results have shown stocks with Value Score A or B combined with Zacks Rank #1 or 2 are best investment option.
The stock has seen the Zacks Consensus Estimate for current-year earnings being raised 4.7% over the last 60 days.
The consensus estimate for 2018 and 2019 translates to a year-over-year increase of 25.2% and 5.1%, respectively. The expected long-term growth rate is pegged at 12%.
Shares of American Financial have climbed 18.8% in a year’s time, surpassing its industry as well as ProAssurance.
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