Estimates for Alleghany Corporation (Y - Free Report) have been revised upward over the past 60 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being revised 3.5% upward to $38 and for 2019 earnings move 4.3% north to $36.75.
The company primarily deals in property and casualty (P&C) reinsurance and insurance businesses. Shares of this Zacks Rank #1 (Strong Buy) P&C insurer have gained 6.9% year to date, outperforming the industry’s 4.3% rise.
Alleghany’s continued strong performance across insurance and reinsurance operations, growing inorganic portfolio and a steady capital deployment should continue to drive favorable results in the near term.
Let’s focus on the factors that make Alleghany a stock to retain for attractive returns.
Improving Revenues: Alleghany has been experiencing consistent improvement in revenues and the momentum continued in the first half as well, mainly driven by higher investment income and noninsurance revenues. We expect this growth trajectory to be carried on in the upcoming quarters, which in turn, will further accelerate the company’s growth.
Higher Net Investment Income: With the gradual improvement in interest rates, the insurer has been able to witness higher investment income in the past few quarters and the momentum continued in the first half of the current year too. Apart from the slow and steady progress in interest rates, higher dividend as well as interest income is likely to aid investment results in the near term.
Strong Inorganic Portfolio: The company relies on prudent acquisitions as one of its key strategies to boost growth. The insurer, through its subsidiaries, will continue to pursue strategic buyouts in the future that will help it expand its operations and further strengthen its portfolio via substantial value addition.
Effective Capital Management: Alleghany’s balance sheet strength has allowed the insurer to lend support to its units to indulge in growth prospects. Additionally, the company has been able to increase its book value per share over a considerable period of time and is estimated to achieve its 7-10% long-term growth target.
This apart, the company has been able to add shareholder value through share buybacks. Even though the insurer does not pay any dividends, it approved a special dividend in March 2018, thereby evolving as an attractive pick for yield-seeking investors.
Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $38, representing whopping year-over-year growth of 1762.8%.
Positive Earnings Surprise History: Alleghany’s surprise history represents its sustained operational performance with the company having delivered positive surprises in three of the last four quarters, the average beat being 17.61%.
Undervalued: Shares of Alleghany are trading at a price-to-book multiple of 1.13, somewhat lower than the industry average of 1.43. Price to book value ratio is the best multiple for valuing life insurers because of large variations in their earnings results from one quarter to the next. This ratio essentially measures a P&C insurer’s current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are lucrative bets.
Other Stocks to Consider
Investors interested in other top-ranked stocks from the same space can also consider The Progressive Corporation (PGR - Free Report) , NMI Holdings Inc. (NMIH - Free Report) and The Navigators Group, Inc. , each sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Progressive Corporation provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance plus related services, primarily in the United States. The company came up with positive surprises in all the preceding four quarters with an average earnings surprise of 9.19%.
NMI Holdings provides private mortgage guaranty insurance services in the United States. The company pulled off positive surprises in all the trailing four quarters with an average positive surprise of 29.85%.
Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average beat of 19.54%.
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