On Aug 14, Zacks Investment Research downgraded Meadowbrook Insurance Group, Inc. (MIG) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Meadowbrook Insurance has witnessed downward estimate revisions after missing second-quarter 2014 expectations. The company delivered negative surprise in three of the last four quarters with an average of negative 83.27%.
On Aug 5, Meadowbrook Insurance reported second-quarter earnings per share of 7 cents, missing the Zacks Consensus Estimate by 30%.
Revenues declined year over year due to lower premiums. Net investment income witnessed a decline due to reduced reinvestment yields.
Expense ratio increased due to expenses associated with the use of an unaffiliated "A" rated insurance company for policy issuance. In addition, the company’s decision to exit under-performing businesses led to lower earned premiums, added to its woes.
Moreover, Meadowbrook Insurance narrowed its expectations. Gross written premium is presently expected between $740 million and $760 million. Net operating income is anticipated in the range of $25.5 to $27.5 million, or 51-55 cents per share. The Zacks Consensus Estimate of 47 cents falls shy of the company guidance. Combined ratio is expected to be within 100.3% to 100.8%.
The Zacks Consensus Estimate for 2014 decreased 2.1% to 47 cents per share over the last 30 days, as 1 of 2 estimates moved south. For 2015, 1 of 3 estimates was revised downward, lowering the Zacks Consensus Estimate by 5% to 57 cents per share over the same time frame.
Other Stocks to Consider
While we currently prefer to avoid Meadowbrook Insurance, better-ranked multiline insurers worth reckoning include FBL Financial Group Inc. (FFG), Fortegra Financial Corp. (FRF) and Radian Group Inc. (RDN). All these stocks hold a Zacks Rank #2 (Buy).