A month has gone by since the last earnings report for Assurant (AIZ). Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Assurant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Assurant Q4 Earnings and Revenues Surpass Estimates
Assurant reported fourth-quarter 2018 net operating income of 77 cents per share, beating the Zacks Consensus Estimate by 67.4%. However, the bottom line deteriorated 58.2% from the year-ago quarter, mainly due to higher reportable catastrophe loss.
Total revenues surged 42.5% year over year to $2.4 billion, mainly attributable to higher premiums earned and net investment income. Moreover, the top line exceeded the Zacks Consensus Estimate by nearly 2%.
Net investment income soared 52.1% year over year to $180.8 million.
Total benefits, loss and expenses escalated 49.8% to $2.3 billion, mainly on account of a noticeable increase in policyholder benefits, selling, underwriting, general and administrative expenses plus interest expense.
For 2018, Assurant delivered net operating income of $5.80 per share, surpassing the Zacks Consensus Estimate by 2.7%. Also, the bottom line improved 45.7% year over year.
However, total revenues of $8.1 billion missed the consensus mark by 0.1% but grew 28.4% year over year.
Net earned premiums, fees and others at Global Housing dipped 10.8% year over year to $502 million, primarily due to the sale of mortgage solutions.
The company incurred net operating loss of $12.4 million against the year-ago quarter’s net operating income of $89.6 million. This downside can be attributed to higher catastrophe loss, stemming from Hurricane Michael and the California wildfires.
Net earned premiums, fees and others at Global Lifestyle soared 77.4% year over year to $1.6 billion. This upside was primarily driven by the contribution of Warranty Group’s $645 million of revenues.
Net operating income of $97.9 million skyrocketed 128.7% year over year. The benefit obtained from Warranty Group buyout, lower tax rate and decent organic growth drove the improvement.
Net earned premiums, fees and others at Global Preneed rose 5.2% year over year to $48.3 million, primarily owing to growth in pre-funded funeral policies in the United States and Canada along with prior-period sales of the Final Need product.
Net operating income jumped a whopping 256.5% year over year to $16.4 million, mainly on the back of the impact from lower effective tax rate, higher net investment income and the absence of a software impairment in fourth-quarter 2017 totaling $5 million.
Net operating loss at Corporate & Other was $27.5 million, narrower than the year-ago quarter’s net operating loss of $29.1 million. Absence of a workforce reduction charge in fourth-quarter 2017 and better investment results were responsible for this upside. However, adverse impact of the lower effective tax rate partially offset this improvement.
Assurant’s financial position remains strong with around $473 million in corporate capital as of Dec 31, 2018.
Total assets augmented 29% to $41.1 billion as of Dec 31, 2018 from $31.8 billion at 2017 end.
Total shareholders’ equity came in at $5.1 billion, up 19.7% year over year.
Share Repurchase and Dividend Update
In the fourth quarter, the company bought back 0.5 million shares worth $49 million. From Jan 1, 2019 onward, through Feb 8, 2019, the company repurchased additional 0.2 million shares for $22 million. It now has $739 million remaining under its current share buyback authorization.
The company’s total dividends amounted to $43 million in the fourth quarter.
On the basis of current market conditions, the company expects:
Assurant estimates net operating income (excluding reportable catastrophe loss) to grow between 6% and 10% from 2018. This earnings growth is likely to be driven by profitability achieved in Global Lifestyle and Global Housing along with share buybacks. This growth rate will comprise an estimated adverse impact of around 2% and the full-year impact of the 10.4 million shares issued for the Warranty Group buyout.
Assurant’s consolidated effective tax rate is projected between 23% and 25%.
Double-digit earnings growth is likely to represent full-year contributions from the Warranty Group that will include $25-$30 million after tax of additional synergy realization, modest organic growth across Connected Living, Global Automotive and multifamily housing along with ongoing expense management efforts. Given a moderate decline in revenues, lender-placed insurance excluding reportable catastrophe loss and the incremental reinsurance costs are projected to be around 2018-levels. However, persistent declines in Global Financial Services might partially offset earnings growth.
Assurant expects full-year net operating loss to hover around 2018-levels at Corporate & Other. Additionally, interest expense is projected in the range of $83-$85 million and preferred dividends are anticipated to be around $20 million. Both these estimates reflect full-year financing costs associated with the buyout of Warranty Group.
Dividends from the units, namely Global Housing, Global Lifestyle and Global Preneed are predicted to approximate segment net operating income (including catastrophe loss).
The company plans to deploy capital, mainly to fund business growth, finance other investments and return capital to shareholders via share buybacks and dividends.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
Currently, Assurant has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Assurant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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