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Alleghany (Y) Down 3.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Alleghany (Y - Free Report) . Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

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

Alleghany Q4 Earnings Beat Estimates, Revenues Improve

Alleghany incurred fourth-quarter 2018 operating loss of $4.35 per share, narrower than the Zacks Consensus Estimate of operating loss of $5. Also, the quarterly loss came in against the year-ago quarter’s operating income of $10.12 per share.

The company suffered net loss of $48.30 per share in the reported quarter versus the year-ago quarter’s earnings of $9.96.

Significant level of catastrophe loss hampered the results in the quarter under review. Nonetheless, the period benefited from higher premiums and revenues.

Full-Year Highlights

For 2018, Alleghany delivered operating income of $16.13 per share, beating the Zacks Consensus Estimate by 4.6% and also increased a whopping 462% from the previous year.

Revenues improved 12.4% year over year to $7.1 billion.

Operational Update

Revenues for the fourth quarter improved 22.2% year over year to $2 billion.

Net premiums written rose 8.5% year over year to $1.3 billion.

Net investment income came in at $122.8 million in the quarter under consideration, down nearly 5% year over year. Negative returns from certain partnership investments, impacted by substantial catastrophe loss in the same time frame, were mainly responsible for this downside.

The fourth-quarter’s underwriting loss was $249.2 million versus the year-ago quarter’s profit of $137.2 million.

Total costs and expenses escalated 45.1% to $2.1 billion.

Segment Update

Reinsurance Segment: Net premiums written improved 11.8% to $1 billion owing to TransRe’s purchase during the period of certain renewal rights related to a block of U.S. treaty reinsurance and reinstatement premiums written because of higher catastrophe loss in the reported quarter. However, higher ceded premiums written, pertaining to an increase in retrocessional coverage purchased during 2018 along with reduction in TransRe’s quota share participation in a particular large whole account quota share treaty, partially offset this upside.

Underwriting loss of $208.9 million came in against the year-ago quarter’s profit of $95.7 million. Also, the segment’s fourth-quarter combined ratio deteriorated 2990 basis points to 120.1%.

Insurance Segment: Net premiums written slipped 2.2% to $269.9 million on the inclusion of premiums written by PacificComp prior to its sale during the fourth quarter of 2017.

Underwriting loss of $40.3 million came in against the year-ago quarter’s underwriting profit of $41.5 million. The combined ratio of the reported segment deteriorated 2920 basis points to 114.9%, attributable to a significant catastrophe loss incurred at RSUI.

Financial Update

Alleghany exited the fourth quarter with cash of $1 billion, up 23.9% from $838.4 million at the end of 2017.

Debt balance of $1.7 billion increased 12.4% from 2017-end level.

Allegheny’s shareholder equity at the end of the fourth quarter declined 9.6% to $7.7 billion from $8.5 billion as of Dec 31, 2017.

Book value per share was $527.75 as of Dec 31, 2018, down 4.6% from the level as of Dec 31, 2017.




Share Repurchase Update

In the quarter under discussion, Alleghany bought back 0.3 million shares worth $209.6 million. As of Dec 31, 2018, the company had $271.5 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. The consensus estimate has shifted -15.03% due to these changes.

VGM Scores

Currently, Alleghany has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 this revision indicates a downward shift. Notably, Alleghany has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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