Why Is Axis Capital (AXS) Up 8.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Axis Capital (AXS). Shares have added about 8.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Axis Capital 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.

AXIS Capital's Q2 Earnings Beat, Revenues Fall Y/Y

AXIS Capital Holdings reported second-quarter 2020 operating income of 84 cents per share, which beat the Zacks Consensus Estimate by 27.3%. However, the bottom line decreased 48.1% year over year.

Higher gross premiums written and lower expenses were offset  by higher catastrophe losses and soft performance of Reinsurance segment.

Operational Update

Second-quarter operating revenues amounted to nearly $1.2 billion, down 8.9% year over year. The downside can primarily be attributed to lower premiums earned and decline in net investment income.

Gross premiums written increased 4.1% year over year to about $1.7 billion, largely attributable to 7.2% increase in the insurance segment.

Net investment income decreased 67.3% year over year to nearly $45 million, primarily due to negative returns from credit and real estate funds.

Total expenses in the quarter under review declined 1.5% year over year to $1 billion, courtesy of reduced acquisition costs, general and administrative expenses, reorganization expenses, lower amortization of value of business acquired, and amortization of intangible assets.

Catastrophe and weather-related losses, net of reinstatement premiums increased 41% year over year to $36 million.

Combined ratio improved 140 basis points (bps) to 94.7%.

Segmental Results

Insurance: Gross premiums written grew 7.2% year over year to $1 billion primarily attributable to increases in professional lines, property, marine and liability lines driven by new business and favorable rate changes, partially offset by decreases in credit and political risk and terrorism lines.

Net premiums earned increased 7.4% year over year to $577 million.

Underwriting income of $34.4 million surged 204% year over year. Combined ratio improved 360 bps to 94.2%.

Reinsurance: Gross premiums written decreased 0.1% year over year to $678.6 million due to decrease in catastrophe, agriculture, and accident and health lines largely offset by increases in motor, liability and professional lines. Net premiums earned declined 10.1% year over year to $526.9 million.

Underwriting income of $53 million decreased 21.3% year over year. Combined ratio deteriorated 110 bps year over year to 90.2%.

Financial Standing

AXIS Capital exited the second quarter with cash and cash equivalents of $1.1 billion, down 12.4% from 2019-end level.

Book value per share increased 11% from first quarter end to $55.09 as of Jun 30, 2020.

Annualized operating return on equity contracted 550 bps to 6.3% in the second quarter.

Dividend Update

The company announced a dividend of 41 cents per share in the reported quarter. Over the past year, total dividend declared was $1.63 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -18.52% due to these changes.

VGM Scores

At this time, Axis Capital 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 C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Axis Capital has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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