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Bull of the Day: The Navigators Group (NAVG)

Todd Bunton

The Navigators Group, Inc. (NAVG) recently delivered a huge first quarter beat as results were strong across the board. This prompted analysts to revise their estimates significantly higher for both this year and next, sending the stock to a Zacks Rank #1 (Strong Buy).

While shares of The Navigators Group have made a meaningful move higher following the Q1 beat, the valuation picture still looks attractive with shares trading at just 1.0x tangible book value. This leaves the stock with plenty of upside potential.

The Navigators Group, Inc. is an international specialty insurance company. Its largest product line and most long-standing area of specialization is ocean marine insurance.

First Quarter Results

Navigators reported strong first quarter results on May 7. Adjusted earnings per share came in at $1.45, crushing the Zacks Consensus Estimate of 97 cents. It was a 93% increase over the same quarter last year.

Gross written premiums increased 7.5% year-over-year while net written premiums rose 15.7%. This was driven in large part by strong growth in the company's Lloyd's division.

Underwriting results were very solid as the loss ratio improved from 64.9% to 60.0%. And the combined loss and expense ratio improved 570 basis points to 97.9%.

Net investment income surged 21.6% year-over-year to $16.6 million as the annualized pre-tax investment yield increased from 2.3% to 2.8%. The investment portfolio's average effective duration was just 3.6 years at the end of Q1, so its interest rate risk appears to be relatively low.

Estimates Rising

Following the huge Q1 beat, analysts revised their estimates significantly higher for both 2014 and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $4.66, up from $3.99 before the Q1 report. The 2015 consensus has risen from $4.49 to $4.90 over the same period.

You can see the sharp increase in estimates in the company's 'Price & Consensus' chart:

Navigators is not the only insurance company seeing rising estimates either. In fact, the 'Insurance - Property & Casualty' industry ranks in the top 3% of all industries based on earnings momentum.

Reasonable Valuation

Shares of Navigators have risen more than +12% since the Q1 report. But the valuation picture still looks attractive.

The stock trades at just 1.0x tangible book value, well below the industry median of 1.8x. It also trades at a reasonable 13.5x 12-month forward earnings.

The Bottom Line

With improving business fundamentals, strong earnings momentum and very reasonable valuation, The Navigators Group still offers investors attractive upside potential.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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