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National General Upgraded to Strong Buy On Solid Q2 Earnings

Zacks Equity Research

On Aug 12, Zacks Investment Research upgraded National General Holdings Corp. (NGHC) by a notch to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

National General has been witnessing rising earnings estimates on the back of strong second quarter earnings, which benefited from improved core business and lower-than-expected catastrophe losses. The company’s solid growth outlook and healthy capital position have been supported by bullish market trends.

Additionally, this multi-line property-casualty insurer delivered positive earnings surprises in the last two quarters, marking an average beat of 86.3% in 2014.

On Aug 7, National General reported second-quarter 2014 operating earnings per share (EPS) of 36 cents, beating the Zacks Consensus Estimate of 25 cents by 44%. EPS was also significantly higher than year-ago figure of 22 cents.  

The upside was driven by 104% year-over-year growth in revenues, reflecting about 153% surge in net earned premiums once again this year. Alongside, service, fee and investment incomes accelerated. Although higher lower loss and loss adjusted expenses slightly deteriorated the combined ratio to 93.8% from 92.6% in the year-ago quarter, return on equity stood strong at 15.4%.

Meanwhile, investment portfolio and cash position witnessed consistent improvement, while the capital and debt refinancing initiatives are other long-term positives. Subsequently, the book value per share improved 4.7% in the quarter.

The successful completion of a sizable reinsurance placement is also likely to safeguard the company’s capital position against catastrophe losses.Moreover, the acquisition of underwriting wings of Imperial Management Corp. scored well with rating agencies and investors, and is likely to be accretive in the long run. Going ahead, a healthy balance sheet, fair liquidity and sturdy fundamentals are expected to mitigate market risks and drive operating leverage in the upcoming quarters.

Following National General’s second-quarter earnings, the company witnessed upward estimate revision for the year 2015, reflecting optimism. The Zacks Consensus Estimate for the next year rose 6.0% to $1.58 in the last 7 days. The estimate for 2014 remained intact Notably, there was no downward estimate revision for both the years.

Other Stocks to Consider

Investors interested in the insurance industry could also consider stocks like Mercury General Corp. (MCY), Greenlight Capital Re Ltd. (GLRE) and Endurance Specialty Holdings Ltd. (ENH). All of these have the same Zacks Rank as National General.

Read the Full Research Report on GLRE
Read the Full Research Report on ENH
Read the Full Research Report on MCY
Read the Full Research Report on NGHC

Zacks Investment Research