Why Is Assurant (AIZ) Down 2.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Assurant (AIZ). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Assurant due for a breakout? 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.
Assurant Q2 Earnings and Revenues Surpass Estimates
Assurant, Inc. reported second-quarter 2023 net operating income of $3.89 per share, which beat the Zacks Consensus Estimate by 49.6%. The bottom line increased 32% from the year-ago quarter. The results reflected higher lender-placed net earned premiums, average insured values and premium rates and improved net investment income, offset by higher expenses.
Total revenues increased 6.4% year over year to $2.7 billion due to higher net earned premiums and net investment income. The top line beat the Zacks Consensus Estimate by 4.3%. Net investment income was up 22.7% year over year to $112.9 million and beat the Zacks Consensus Estimate of $110 million. The figure was higher than our estimate of $109.2 million.
Total benefits, loss and expenses increased 3.6% to $2.5 billion, mainly on account of an increase in policyholder benefits and underwriting, selling, general and administrative expenses. The figure was higher than our estimate of $2.4 billion.
Segmental Performance
Revenues at Global Housing increased 16% year over year at $561.8 million. The growth was driven by Homeowners from a rise in lender-placed policies in-force as well as higher average insured values and premium rates to address increased claims severity and higher net investment income. The figure beat the Zacks Consensus Estimate of $512 million and was higher than our estimate of $501.1 million. Adjusted EBITDA of $154.6 million surged more than two-fold year over year due to significant growth in Homeowners from higher lender-placed net earned premiums and lower non-catastrophe loss experience, including a $40 million year-over-year decrease in prior period reserve development. The figure was higher than our estimate of $80.4 million.
Revenues at Global Lifestyle increased 5.3% year over year to $2.2 billion. The improvement was primarily driven by prior period sales in Global Automotive, increased Connected Living business as well as higher net investment income. The figure beat the Zacks Consensus Estimate of $2.1 billion and was higher than our estimate of $2 billion. Adjusted EBITDA of $197 million decreased 11% year over year due to lower Global Automotive and Connected Living results, including the absence of a $12.9 million gain from the sale of a real estate joint venture partnership in the prior-year period.
Adjusted EBITDA loss at Corporate & Other was $28.5 million, wider than the year-ago quarter’s adjusted EBITDA loss of $24.9 million. The wider loss was due to lower net investment income from lower asset balances.
Financial Position
Liquidity was $495 million as of Jun 30, 2023, which was $270 million higher than the company’s current targeted minimum level of $225 million. Total assets decreased 0.03% to $33.1 billion as of Jun 30, 2023 from 2022 end. The figure, however, was higher than our estimate of $32.3 billion. Total shareholders’ equity came in at $4.5 billion, up 6% year over year. The figure was higher than our estimate of $4.2 billion.
Share Repurchase and Dividend Update
In the second quarter of 2023, Assurant repurchased 0.1 million shares for $20 million. From Jul 1 through Jul 28, 2023, AIZ repurchased additional shares for approximately $10 million. It now has $245 million remaining under the current repurchase authorization. Assurant’s total dividends amounted to $40 million in the second quarter of 2023.
2023 Guidance
Assurant expects adjusted EBITDA, excluding reportable catastrophes, to increase by high single-digits, driven by significant growth in Global Housing, partially offset by a modest decline in Global Lifestyle. The company expects Global Housing Adjusted EBITDA, excluding reportable catastrophes, to grow significantly, driven by strong performance in Homeowners reflecting higher lender-placed net earned premiums combined with improving non-catastrophe loss experience, including favorable prior period reserve development.
AIZ expects Global Lifestyle Adjusted EBITDA to decline modestly, largely driven by Global Automotive from elevated claims costs and less international contributions, including lower volumes and the impact of foreign exchange. The decline will be partially offset by higher investment income, expense savings to be realized over the course of the year and modest underlying Connected Living growth in North America. Corporate and Other Adjusted EBITDA loss is expected to be approximately $105 million as the company continues to drive expense leverage. Assurant expects Adjusted earnings, excluding reportable catastrophes, per diluted share growth rate to approximate Adjusted EBITDA, excluding reportable catastrophes.
AIZ expects depreciation expense of nearly $110 million, interest expense of approximately $110 million and an effective tax rate in the range of 22% to 24%. Assurant expects business segment dividends to approximate 65% of segment Adjusted EBITDA, including reportable catastrophes, which takes into account the previously announced restructuring plan. This is subject to the business and investment portfolio performance and rating agency and regulatory capital requirements. Capital deployment priorities is projected to focus on maintaining a strong financial position, supporting business growth by funding investments and M&A and returning capital to shareholders through common stock dividends and share repurchases.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Assurant has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Outlook
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.
Performance of an Industry Player
Assurant belongs to the Zacks Insurance - Multi line industry. Another stock from the same industry, Everest Group (EG), has gained 0.9% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
Everest Group reported revenues of $3.65 billion in the last reported quarter, representing a year-over-year change of +18.7%. EPS of $15.21 for the same period compares with $9.79 a year ago.
For the current quarter, Everest Group is expected to post earnings of $6.60 per share, indicating a change of +225% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.8% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Everest Group. Also, the stock has a VGM Score of A.
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