On Jun 13, 2014, we issued an updated research report on ACE Limited (ACE).
This Zacks Rank #2 (Buy) property and casualty insurer has been delivering positive surprise over the last several quarters. Solid underwriting performances coupled with improved investment results helped it to outperform the Zacks Consensus Estimate and improve year over year.
Its inorganic story seems impressive with continued acquisitions, which have also improved premium writings. The company expects these acquisitions help meet or exceed its long-term ROE goal of 15%. Moreover, the company’s debt to capital ratio is likely to continue improving as it has sufficient cash balance with which it can lower its debt level.
ACE Limited remains focused on sharing more profits with it shareholders. Within the first half of 2014, the board of directors approved two dividend hikes. Its dividend yield also compares favorably with sector average. ACE Limited aims to achieve a dividend payout ratio of 30% of its operating earnings. It also engages in share repurchases and targets $1.5 million share buyback in 2014, of which $436 million has already been bought back.
However, increased expenses over the last few years have created pressure on operating margin expansion at ACE Limited. If expenses continue to increase at a higher pace than revenue growth, operating margin expansion will be affected further.
Being a property and casualty insurer, ACE Limited is exposed to cat occurrences. If the company incurs huge cat loss, its underwriting results and combined ratio is hugely affected.
With respect to estimate revisions, the Zacks Consensus Estimate for 2014 and 2015 increased as most of the estimates were raised over the last 60 days. It is currently pegged at $8.94 (up 2.4% as 11 of 12 estimates moved north) for 2014 and at $9.23 (up 1.1% as 8 of 12 estimates were raised) for 2015. The expected long-term earnings growth rate of the stock is 10%.
Other Stocks to Consider
Some better-ranked property and casualty insurers worth reckoning are W.R. Berkley Corporation (WRB), AmTrust Financial Services, Inc. (AFSI) and Aspen Insurance Holdings Ltd. (AHL). All these stocks sport a Zacks Rank #1 (Strong Buy).