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Arch Capital Group: A Strong Buy

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On Mar 8, Zacks Investment Research upgraded Arch Capital Group Ltd. (ACGL - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Arch Capital has been witnessing rising earnings estimates on the back of strong fourth-quarter 2012 results. Moreover, this property and casualty insurer delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 24.2%. The long-term expected earnings growth rate for this stock is 9.4%.    

Additionally, to foray into the U.S. Mortgage Insurance market, Arch U.S. MI, the U.S. subsidiary of Arch Capital, announced that it will acquire CMG Mortgage Insurance Company (CMG MI) from PMI Mortgage Insurance Company for $300 million.

Thus, the deal will not only entail Arch Capital to penetrate the U.S. mortgage insurance market but also will help it obtain mortgage insurance license throughout the nation, thereby diversifying its business portfolio and providing a global operating platform. Management expects the deal to complement its objective to expand and capitalize on new specialty lines of business.

Moreover, with excess capital in hand, the company expects to continue increasing shareholders value.

Arch Capital reported its fourth-quarter results on Feb 11. Non-GAAP loss per share came in at 18 cents, better than the Zack Consensus Estimate of a loss of 49 cents.

Top line improved 14% year over year to $855 million, driven by strong improvement in net premiums earned (up 15.7% year over).

The Zacks Consensus Estimate for 2013 increased 4.0% to $3.09 per share as 6 of 14 estimates were revised higher over the last 30 days. The estimate also represents a year-over-year increase of 21.7%.

Other Stocks to Consider

Other property and casualty insurers like Cincinnati Financial Corp. (CINF - Free Report) , XL Group plc (XL - Free Report) and Navigators Group Inc. (NAVG - Free Report) , carry a Zacks Rank #1 (Strong Buy) and are worth noting.

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