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Why Is Alleghany (Y) Up 3.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Alleghany (Y). Shares have added about 3.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Alleghany due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Alleghany's Earnings Top Estimates in Q2, Improve Y/Y

Alleghany delivered second-quarter 2019 operating earnings of $12.40 per share, beating the Zacks Consensus Estimate by 30.8% on the back of higher revenues. Moreover, the metric increased 26.8% year over year.

Operational Update

Revenues in the quarter improved 23.3% year over year to $2.1 billion, supported by solid organic growth and the buyout of Concord.

Net premiums written rose 13.4% year over year to $1.4 billion, banking on a rising excess and surplus market, rate increases, better terms, more submissions and strong premium growth across most business lines.

Net investment income came in at $143 million in the quarter under consideration, up 13% year over year. This upside is driven by higher interest income and better partnership income.

Total costs and expenses escalated 25.7% to $3.6 billion.

Segment Update

Reinsurance Segment: Net premiums written improved 14% to $1.1 billion owing to TransRe’s purchase of the renewal rights to a block of U.S. treaty reinsurance. However, the same was slightly offset by a decrease in net premiums written pertaining to a large whole account quota share treaty plus an effect of changes in forex rates.

The segment's underwriting profit declined 8.7% year over year to $75.9 million. Also, its second-quarter combined ratio expanded 10 basis points (bps) to 92.9%.

Insurance Segment: Net premiums written rose 11.5% year over year, riding on a robust contribution from CapSpecialty and RSUI.

Underwriting profit of $39 million surged 45% year over year. The combined ratio of this reported segment contracted 330 bps to 86.2%. This upside reflects higher favorable prior accident year loss reserve development and the impact of better net premiums earned at RSUI.

Financial Update

Alleghany exited the second quarter with $824 million cash, down 20.6% from the figure at 2018 end.

Senior notes and other debt inched up 2.7% from the level at 2018 end.

Alleghany’s shareholder equity at the end of the second quarter increased 13% to $8.7 billion from the level as of Dec 31, 2018.

Book value per share was $601.9 as of Jun 30, 2019, up 14.1% from the level as of Dec 31, 2018.

Share Repurchase Update

As of Jun 30, 2019, the company had $178 million remaining under its share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 11.37% due to these changes.

VGM Scores

At this time, Alleghany has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Alleghany has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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