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Axis Capital (AXS) Down 1.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Axis Capital (AXS - Free Report) . Shares have lost about 1.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Axis Capital 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.

AXIS Capital (AXS - Free Report) Q2 Earnings Top Estimates, Revenues Up Y/Y

AXIS Capital Holdings reported second-quarter 2018 operating profit of $1.27 per share, surpassing the Zacks Consensus Estimate by 6.7%. However, the bottom line declined 3.1% year over year.

Premiums improved substantially in the reported period. The encouraging quarterly performance reflects the benefits of portfolio optimization initiatives and an earnings potential. Also, acquisition of Novae Group contributed to this upside. Insurance segment also delivered a stellar performance.  However, Reinsurance segment was soft in the quarter and expenses increased year over year.

Operational Update

Operating revenues of about $1.3 billion missed the Zacks Consensus Estimate by 13.5%. However, the top line rose nearly 19.2% year over year.

Gross premiums written improved 21% year over year to about $1.7 billion, largely driven by the acquisition of Novae Group and a 4% increase in the Reinsurance segment.

Net investment income gained 3.7% year over year to nearly $102 million.

Total expense in the quarter under review rose 14.6% year over year to $1.2 billion, attributable to higher net loss and loss expenses, acquisition costs, general and administrative expenses, foreign exchange loss as well as higher interest expense plus financing costs. The period also incurred Transaction and reorganization expenses, amortization of value of business acquired and amortization of intangibles, all of which, were absent in the prior-year quarter.

AXIS Capital reported underwriting income of $115.7 million, having more than doubled year over year. Combined ratio improved 450 basis points (bps) to 93.1%.

AXIS Capital is on track to deliver savings of $100 million by year-end 2020, leveraging Novae integration and transformation efforts. Hence, the company estimates to incur cumulative pre-tax reorganization expenses of $100 million, of which, $48 million has already been incurred since the third quarter 2017.

Segment Results

Insurance: Gross premiums written surged 34.3% year over year to $1 billion owing to better performing property, professional lines and marine lines associated with Novae buyout.

Net premiums earned increased 38.3% year over year.

Underwriting income of $56.5 million rebounded from the year-ago loss of $2.9 million.  Combined ratio improved 1040 bps to 90.4%.

Reinsurance: Gross premiums written in the second quarter increased 4.4% year over year to $624 million, largely on the back of premiums from catastrophe plus marine and aviation lines associated with the Novae acquisition.

Net premiums earned increased 7.9% year over year.  

Underwriting income of $59.2 million dipped 1% year over year. Combined ratio deteriorated 100 bps year over year to 90.7%.

Financial Update

AXIS Capital exited the quarter with cash and cash equivalents of $1.5 billion, up 11.9% over the level at 2017 end.  

Notes payable and debt were $1.4 billion, almost flat with 2017-end level.

Book value per share decreased 12.9% year over year to $53.59 as of Jun 30, 2018.

Operating return on equity expanded 90 basis points year over year to 9.5%.

Dividend Update

The company announced a dividend of 39 cents per share in the reported quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 20.17% due to these changes.

VGM Scores

Currently, Axis Capital has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 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 soley for value based on our styles scores.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Axis Capital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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