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Alleghany (Y) Up 3.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Alleghany (Y - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Alleghany 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 catalysts.

Alleghany (Y - Free Report) Earnings Miss Estimates in Q3, Improve Y/Y

Alleghany Corporation incurred third-quarter 2018 operating loss of $1.07 per share, which compared unfavorably with the Zacks Consensus Estimate for operating earnings of $3.50 per share. However, the quarterly loss came in narrower than the year-ago quarter’s figure.

The company delivered net earnings of $19.07 per share in the reported quarter reversing the year-ago quarter’s loss of $20.90.

The quarter under review benefited from a better underwriting performance at TransRe, higher investment income as well as a lower tax incidence.

Operational Update

Revenues for the third quarter improved 9.2% from the year-ago quarter’s tally to 1.8 billion.

Net premiums written dipped 1.7% year over year to $1239.1 million.

Net investment income came in at $127.3 million in the quarter under consideration, up 21.7% year over year. This uptick is driven by a higher dividend income, stemming from equity investments as well as partnership returns.

Underwriting loss of $140 million was significantly narrower than the year-ago quarter’s loss of $650.4 million.

Total costs and expenses decreased 16.5% to $1.8 billion.

Segment Update

Reinsurance Segment: Net premiums written nudged up 0.7% to $985.2 million owing to TransRe’s purchase during the period of certain renewal rights related to a block of U.S. treaty reinsurance as well as rise in premiums written by the Asia-Pacific operations. However, a decline in reinstatement premiums due to substantially lower catastrophe loss in the reported quarter, impact of volatility in forex rates and higher ceded premiums written, pertaining to an increase in retrocessional coverage purchased in 2018, partially offset this upside.

Underwriting loss of $172.4 million was noticeably narrower than the year-ago quarter’s loss of $474.9 million. The segment’s third-quarter combined ratio improved 3190 basis points to 117.9%.

Insurance Segment: Net premiums written were down 9.9% to $253.9 million on the sale of PacificComp during the fourth quarter of 2017. However, growth at CapSpecialty and RSUI limited this downside.

Underwriting profit of $32.4 million rebounded from the year-ago quarter’s underwriting loss of $175.5 million. The combined ratio of the reported segment improved 7360 basis points to 87.7%, attributable to an increase in favorable prior-year accident year loss reserve development and lower catastrophe loss incurred at RSUI.

Financial Update

Alleghany exited the third quarter with cash of $646.9 million, down 22.8% from $838.4 million at the end of 2017.

Debt balance of $1.6 billion rose 6.5% from 2017-end level.

Allegheny’s shareholder equity at the end of the third quarter inched up 0.9% to $8.6 billion from $8.5 billion as of Dec 31, 2017.

Book value per share was $560.49 as of Sep 30, 2018, up 2.8% from the level as of Dec 31, 2017.

Share Repurchase Update

In the reported quarter, Alleghany bought back shares worth $46 million. As of Sep 30, 2018, the company had $481.1 million remaining under its share repurchase authorization.


How Have Estimates Been Moving Since Then?

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

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