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W.R. Berkley (WRB) Up 6.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for W.R. Berkley (WRB - Free Report) . Shares have added about 6.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is W.R. Berkley due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

W.R. Berkley Q3 Earnings & Revenues Top, Rise Y/Y

W.R. Berkley Corporation’s third-quarter 2018 operating income of $1.13 per share beat the Zacks Consensus Estimate of 83 cents by 36.1%. Also, the bottom line skyrocketed213.9% year over year.

The company witnessed improved revenues, attributable to higher premiums, a favorable underwriting performance as well as an increase in net investment income. Also, expenses slightly declined in the reported quarter.

Including net realized and unrealized pre-tax gains, net income remained unchanged from the year-ago quarter to $1.26 per share.

Behind the Headlines

W.R. Berkley’s net premiums written for the quarter under review were $1.6 billion, up 3.4% year over year. Higher premiums written at the Insurance segment primarily contributed to this upside. However, lower premiums written at the Reinsurance segment partially offset the improvement.

Operating revenues came in at $1.92 billion, up 3.7% year over year, mainly owing to higher net premiums earned and an improved net investment income. Moreover, the top line beat the Zacks Consensus Estimate by 7.5%.

Investment income surged 30.6% year over year to $186.1 million, driven by solid results in investment funds, an increase in the yield on fixed maturity securities as well as a higher base of invested assets.

Total expenses declined 4.2% to $1.7 billion, primarily on lower losses plus loss expenses and other operating costs as well as expenses.

Catastrophe loss totaled $39 million in the reported period. Consolidated combined ratio (a measure of underwriting profitability) came in at 95.9%, improving 510 basis points (bps) from the prior-year period.

Segment Details

Net premiums written at the Insurance segment grew 5.1% year over year to $1.5 billion in the quarter under consideration. This increase was attributable to higher premiums written under other liability, workers’ compensation, short-tail lines as well as commercial automobile. Combined ratio in this segment improved 70 bps year over year to 94.9%.

Net premiums written in the Reinsurance segment decreased 13.9% year over year to $119.4 million due to substantially lower premiums written under casualty as well as property reinsurance. Combined ratio improved 4570 bps to 107.9%.

Financial Update

W.R. Berkley exited the third quarter with total assets worth $24.9 billion, up 2.3% from the year-end 2017.

Book value per share remained unchanged at $44.53 as of Sep 30, 2018from the level as of Dec31, 2017.

Cash flow from operations for the quarter under discussion totaled $223.2 million, down 24.9% from the prior-year period.

The company’s return on equity deteriorated 80 bps to 12.0%.

Share Repurchase Update

In the reported quarter, the company did not buy back any shares of its common stock. Hence, during the first nine months of 2018, the company repurchased 0.1 million shares for $6.8 million.

In the quarter under review, the company returned capital worth $79 million to shareholders, which comprised $61 million as special dividends.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, W.R. Berkley has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, W.R. Berkley has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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