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Meadowbrook Insurance Group, In Message Board

  • moses.genius moses.genius Feb 11, 2013 8:16 PM Flag

    Why is this co selling at half its book value????

    Meadowbrook Insurance is way undervalued. Its selling for $6 a share and its book value is nearly $12

    Sentiment: Strong Buy

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    • Current EPS estimates suggest a return on equity of about 6%, or roughly 1/2 of the company's cost of capital. Where else should it trade relative to book value? And why?

    • Well, this should be an interesting earnings call. I think there are four reasons.

      1) Book value has declined each of the last 4 quarters (IIRC)
      2) Uncertainty regarding loss reserves and the new reinsurance agreements
      3) AM best rating concerns/ capital constraints
      4) Difficult visibility on future earnings/history of earnings misses.

      There is no question that ,if they clean these things up, there is an opportunity for this stock to really jump. Increasing rates in the commercial insurance sectro should be helpful. But there is work to be done for sure, and it is not a slam dunk.

      • 1 Reply to joe_sutton21224
      • It appears that Meadowbrook is "managing" their loss reserves to avoid a loss and therefore a downgrade by AM Best. This would be the death of the company. If they can manage to pull themselves through and gradually strengthen the reserves while getting off bad business and increasing pricing (the market must cooperate with them) then this could shoot up. More likely is continued managing of loss reserves, digging themselves in to a bigger hole and eventual collapse. We will see. I heard a rumor that Enstar was looking at them to buy and rejected it (or maybe was rejected.

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