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AXIS Capital Declines 34% YTD: What's Hurting the Stock?
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AXIS Capital Holdings Limited (AXS - Free Report) is being adversely impacted by escalating costs and weak underwriting results. These, in turn, are putting pressure on margin expansion.
Shares of this Zacks Rank #5 (Strong Sell) property and casualty (P&C) insurer have lost 34.3% on a year-to-date basis, compared with the industry’s decline of 18.5%.
The Zacks Consensus Estimate for 2020 earnings per share is pegged at 97 cents, indicating a decline of 61.5% from the year-ago reported figure.
High Costs and Rising Debt Levels Impacting Performance
AXIS Capital continues to suffer from increased costs primarily owing to higher net losses and loss expenses, general and administrative expenses, acquisition costs and an increase in interest expense and financing costs. Such costs tend to put pressure on the company’s margin expansion. Notably in first-quarter 2020, net margin contracted 560 basis points (bps) sequentially and 80 bps year over year.
Moreover, this P&C insurer remains exposed to catastrophe losses for quite some time now, which in turn, has dented the company’s underwriting results to some extent. Catastrophe and weather-related losses, net of reinstatement premiums soared 2705% year over year in first-quarter 2020. Apart from other weather-related events, this surge in catastrophe losses is primarily due to the COVID-19-induced financial turmoil.
The pandemic, which is adversely impacting the global economy, has dented top-line growth of AXIS Capital in the first quarter to some extent. Further, the trend is anticipated to persist in the days ahead. Notably, the Zacks Consensus Estimate for the company’s 2020 revenues is pegged at $4.75 billion, indicating a decline of 6.5% from the year-ago reported figure.
Being an important driver of the company’s revenues, net investment income has declined in first-quarter 2020 mainly due to decrease in hedge fund returns. However, the current low interest rate environment is likely to keep investment yields under pressure, which would consequently weigh on overall investment income.
Furthermore, AXIS Capital’s debt levels have been increasing for the past two years. As of Mar 31, 2020, its total debt-to-total capital of 30% is higher than the industry’s figure of 21.8%. The P&C insurer’s interest coverage ratio of 1.93 compares unfavorably with the industry’s figure of 4.31, which implies that its earnings are not sufficient to cover interest obligations.
Additionally, AXIS Capital’s trailing 12-month negative return on equity (ROE) of 0.4% is lower than the industry’s ROE of 6.5%. This highlights the company’s inability to utilize its shareholders’ funds.
We believe that such potential headwinds are likely to dent the company’s growth prospects going forward.
Allstate provides a range of life insurance and investment products to its diverse customer base. It beat estimates in each of the trailing four quarters, with the average positive surprise being 18.45%.
Palomar provides specialty property insurance products for individuals and businesses. It has a trailing four-quarter positive earnings surprise of 10.93%, on average.
Primerica provides financial products and services to serve middle income families by helping them make informed financial decisions. It outpaced estimates in each of the preceding four quarters, with the average positive surprise being 4.29%.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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AXIS Capital Declines 34% YTD: What's Hurting the Stock?
AXIS Capital Holdings Limited (AXS - Free Report) is being adversely impacted by escalating costs and weak underwriting results. These, in turn, are putting pressure on margin expansion.
Shares of this Zacks Rank #5 (Strong Sell) property and casualty (P&C) insurer have lost 34.3% on a year-to-date basis, compared with the industry’s decline of 18.5%.
The Zacks Consensus Estimate for 2020 earnings per share is pegged at 97 cents, indicating a decline of 61.5% from the year-ago reported figure.
High Costs and Rising Debt Levels Impacting Performance
AXIS Capital continues to suffer from increased costs primarily owing to higher net losses and loss expenses, general and administrative expenses, acquisition costs and an increase in interest expense and financing costs. Such costs tend to put pressure on the company’s margin expansion. Notably in first-quarter 2020, net margin contracted 560 basis points (bps) sequentially and 80 bps year over year.
Moreover, this P&C insurer remains exposed to catastrophe losses for quite some time now, which in turn, has dented the company’s underwriting results to some extent. Catastrophe and weather-related losses, net of reinstatement premiums soared 2705% year over year in first-quarter 2020. Apart from other weather-related events, this surge in catastrophe losses is primarily due to the COVID-19-induced financial turmoil.
The pandemic, which is adversely impacting the global economy, has dented top-line growth of AXIS Capital in the first quarter to some extent. Further, the trend is anticipated to persist in the days ahead. Notably, the Zacks Consensus Estimate for the company’s 2020 revenues is pegged at $4.75 billion, indicating a decline of 6.5% from the year-ago reported figure.
Being an important driver of the company’s revenues, net investment income has declined in first-quarter 2020 mainly due to decrease in hedge fund returns. However, the current low interest rate environment is likely to keep investment yields under pressure, which would consequently weigh on overall investment income.
Furthermore, AXIS Capital’s debt levels have been increasing for the past two years. As of Mar 31, 2020, its total debt-to-total capital of 30% is higher than the industry’s figure of 21.8%. The P&C insurer’s interest coverage ratio of 1.93 compares unfavorably with the industry’s figure of 4.31, which implies that its earnings are not sufficient to cover interest obligations.
Additionally, AXIS Capital’s trailing 12-month negative return on equity (ROE) of 0.4% is lower than the industry’s ROE of 6.5%. This highlights the company’s inability to utilize its shareholders’ funds.
We believe that such potential headwinds are likely to dent the company’s growth prospects going forward.
Stocks to Consider
Some better-ranked stocks in the insurance space include The Allstate Corporation (ALL - Free Report) , Palomar Holdings, Inc. (PLMR - Free Report) and Primerica, Inc. (PRI - Free Report) each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Allstate provides a range of life insurance and investment products to its diverse customer base. It beat estimates in each of the trailing four quarters, with the average positive surprise being 18.45%.
Palomar provides specialty property insurance products for individuals and businesses. It has a trailing four-quarter positive earnings surprise of 10.93%, on average.
Primerica provides financial products and services to serve middle income families by helping them make informed financial decisions. It outpaced estimates in each of the preceding four quarters, with the average positive surprise being 4.29%.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>