Updated Research Report on Amerisafe


On May 21, we issued an updated research report on Amerisafe Inc. (AMSF). The company has been benefiting from strong core fundamentals and diversified portfolio initiatives over the past couple of years. However, declining investment returns and moderated growth in premiums raise concern.

This Zacks Rank #3 (Hold) stock has delivered positive earnings surprises in 2 of the last 4 quarters with an average beat of 14.2%. The company’s first-quarter earnings lagged the Zacks Consensus Estimate by 11.1% but was higher than the year-ago quarter number by 19.1%.

After posting mid double-digit growth in premiums written for the 12 consecutive quarters until fourth-quarter 2013, these toned-down to about 8% growth in first-quarter 2014. Moreover, although investment income stabilized, investment yield deteriorated to 3.8% at Mar 2014-end from 4.2% in the year-ago period. The higher trend of expenses and lack of any near-term growth catalyst are the other challenges.

Nevertheless, operating leverage continues to remain strong as reflected by improved underwriting results, development reserves, combined ratio and return on equity (:ROE). These pillars of growth also support Amerisafe’s liquidity, as evident from its strong cash flows and risk-free balance sheet.

We believe that Amerisafe’s efficient deployment of excess capital, particularly, hiking regular cash dividends by 50% within a year of the payout initiation, along with the first extraordinary cash dividend payout of $0.50 per share (all in Mar 2014) will keep long-term shareholders invested in the stock.

Overall, a restrained risk-reward balance in the near term has led to negative estimate revisions for 2014 and 2015. As a result, the Zacks Consensus Estimate for 2014 and 2015 are pegged at $2.47 and $2.98 per share, down 7.8% and 7.2%, respectively, in the last 30 days.

Key Picks in the Sector

Currently, we prefer to remain at the periphery regarding Amerisafe. However, some top-ranked stocks in the insurance sector such as AmTrust Financial Services Inc. (AFSI), OneBeacon Insurance Group Ltd. (OB) and HCI Group Inc. (HCI), all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning.

Read the Full Research Report on AMSF
Read the Full Research Report on OB
Read the Full Research Report on AFSI
Read the Full Research Report on HCI

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