It has been about a month since the last earnings report for Assurant (AIZ). Shares have added about 7.8% 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 Q1 Earnings, Revenues Top Estimates, Up Y/Y
Assurant, Inc. reported first-quarter 2019 net operating income of $2.21 per share, which beat the Zacks Consensus Estimate by 3.8%. The bottom line increased 10.5% from the year-ago quarter.
The quarter benefited from contributions from acquisition of TWG and organic mobile growth. Global Lifestyle earnings improved remarkably. Global Housing and Global Preneed segments too delivered improved income.
Total revenues surged 48.1% 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 4.1%.
Net investment income soared 27.7% year over year to $166.3 million.
Total benefits, loss and expenses escalated 47.7% to $2.2 billion, mainly on account of a noticeable increase in policyholder benefits, selling, underwriting, general and administrative expenses plus interest expense.
Net earned premiums, fees and others at Global Housing declined 4% year over year to $500 million, primarily due to the sale of mortgage solutions.
Net operating income of $72.7 million improved 2% year over year.
Net earned premiums, fees and others at Global Lifestyle soared 83% year over year to $1.7 billion. This upside was primarily driven by TWG revenues.
Net operating income of $100.6 million skyrocketed 80% year over year, driven by TWG acquisition and organic growth in Connected Living.
Net earned premiums, fees and others at Global Preneed rose 6% year over year to $49.1 million, primarily owing to growth in prefunded funeral policies in the United States as well as prior period sales of the Final Need product.
Net operating income jumped 20% year over year to $11.8 million, mainly on the back higher investment income and lower mortality.
Net operating loss at Corporate & Other was $18.8 million, narrower than the year-ago quarter’s net operating loss of $20 million attributable to lower employee-related expenses.
Liquidity was $354 million as of Mar 31, 2019, about $129 million above the company’s current targeted minimum level of $225 million.
Total assets increased 2.8% to $42.2 billion as of Mar 31, 2019 from 2018 end.
Total shareholders’ equity came in at $5.5 billion, up 6.6% year over year.
Share Repurchase and Dividend Update
In the first quarter, the company bought back 0.5 million shares for $51 million. From Apr 1 through May 3, the company repurchased additional 0.2 million shares for $21 million. It now has $690 million remaining under its current share buyback authorization.
The company’s total dividends amounted to $42 million in the quarter.
On the basis of current market conditions, Assurant estimates net operating income (excluding reportable catastrophe loss) to grow between 6% and 10% from 2018 driven by profitability achieved in Global Lifestyle and Global Housing along with share buybacks. This growth rate includes full-year impact of the 10.4 million shares issued for the Warranty Group buyout.
Consolidated effective tax rate is projected between 23% and 25%.
Double-digit earnings growth is likely to reflect 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 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 take into account 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 have trended downward during the past month.
Currently, Assurant has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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