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Why Mercury General Is a Strong Buy

Zacks Equity Research

On Jun 28, Zacks Investment Research upgraded Mercury General Corporation (MCY) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Mercury General has witnessed rising earnings estimates on the back of strong first-quarter 2014 results. This property and casualty insurer delivered positive earnings surprises in two of the last four quarters.

Mercury General topped the Zacks Consensus Estimate by 22% and year-ago earnings by 11.6% driven by solid performance at the California private passenger auto business. The quarter experienced top-line improvement along with a cut in expenses. Top line showed improvement on higher premiums, which increased for 13 straight quarters. In addition, expenses declined and aided margins. Combined ratio improved 130 basis points year over year.

Mercury General undertook several initiatives to improve its cost structure outside of California. It successfully lowered private passenger auto rates in five markets in the first quarter that had an immediate positive impact on new business sales. While the Mercury General expects new business sales outside California to improve, it does not estimate premiums written to ramp up in the near term.

Strong performance prompted upward revisions in the Zacks Consensus Estimate for 2014 and 2015, which moved over the last 60 days. The estimate climbed up 3.3% to $2.51 for 2014 and 2.0% to $2.53 for 2015. This also represents a year-over-year improvement of 15.29% and 0.5%, respectively. The expected long-term growth rate for the stock is 2.1%.

Other Stocks to Consider

Investors interested in the property and casualty insurance industry could also consider stocks like AmTrust Financial Services, Inc. (AFSI), Endurance Specialty Holdings Ltd. (ENH) and Hallmark Financial Services Inc. (HALL). All these stocks share the same Zacks Rank with Mercury General.

Read the Full Research Report on MCY
Read the Full Research Report on HALL
Read the Full Research Report on AFSI
Read the Full Research Report on ENH

Zacks Investment Research