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Alleghany (Y) Up 11.2% 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 11.2% 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 Q1 Earnings Miss Estimates, Revenues Rise Y/Y

Alleghany reported first-quarter 2020 adjusted income of $4.99 per share, which missed the Zacks Consensus Estimate by nearly 5%. The bottom line plunged 48.3% year over year.

The company witnessed better results at Insurance segment but the performance of the Reinsurance segment was soft.

Operational Update

Operating revenues improved 4.6% year over year to $2 billion on higher net premiums earned.

Net premiums written rose 10.7% year over year to $1.5 billion.

Net investment income came in at $112 million, down 8.9% year over year, attributable to losses on credit-related partnership investments.

Underwriting loss was $24 million against the year-ago quarter’s profit of $85 million. Losses include $153 million of catastrophe losses at TransRe related to the COVID-19 pandemic.

Total costs and expenses increased 10.4% to $1.9 billion.

Alleghany Capital’s pretax earnings were $0.3 million, down from $30.2 million in the year-ago quarter.

Segment Update

Reinsurance Segment: Net premiums written improved 9.3% to $1.2 billion owing to an increase in various domestic casualty lines of business written, including general liability, professional liability and umbrella lines of business, partially offset by a slight decrease in property lines of business written globally and the impact of changes in foreign currency exchange rates.

Underwriting loss was $1678.9 million against year-ago quarter’s income of $40 million. Combined ratio deteriorated 1090 basis points to 107%, reflecting catastrophe losses, largely related to the Pandemic.

Insurance Segment: Net premiums written increased 16% to $322.7 million, driven by growth at RSUI.

Underwriting income of $54.5 million improved 21.9% year over year. The combined ratio of the reported segment improved 90 basis points to 82.5%.

Financial Update

Cash balance was $1.6 billion, up 31.9% from 2019 end level.

Debt balance of $1.5 billion decreased 13.5% from 2019-end level.

Allegheny’s shareholder equity at the end of the first quarter increased 14.1% to $7.9 billion down 10.5% from 2019 end level.

Book value per share was $549.07 as of Mar 31, 2020, down 7.7% from the level as of Dec 31, 2019.

Cash outflow from operating activities was $7.3 billion, lower than $66.4 billion outflow in year ago quarter.

Share Repurchase Update

Allegheny bought back shares worth $44 million in the quarter.

As of Mar 31, 2020, the company had $583 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 -56.83% due to these changes.

VGM Scores

At this time, Alleghany has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, 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 these revisions indicates a downward shift. It's no surprise Alleghany has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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