ACE Reiterated at Neutral - Analyst Blog
05 Avril 2013 - 4:50PM
Zacks
We have retained our Neutral
recommendation on ACE Limited (ACE). The low
interest rate environment, rising operating expenses and high
exposure to weather related losses will likely offset the positive
impact of the acquisitions made by ACE. The excess liability
insurance provider currently carries a Zacks Rank #3 (Hold).
Why Reiterate?
ACE has been witnessing higher operating expenses over the past few
years owing to increasing policy benefits, and losses and loss
expenses. This has affected operating margin adversely. Also, lower
interest rates and the adverse impact of foreign exchange has hurt
net investment income for some time. Moreover ACE’s huge exposure
to catastrophe losses always remains a matter of concern for the
company. It incurred a loss of $393 million from superstorm Sandy
in 2012, exceeding its estimate of $380 million.
Counting on the positives, ACE Limited continues to expand its
global footprint through acquisitions in Indonesia and Mexico. To
expand its Surety business, recently it completed acquisition of
Fianzas Monterrey from New York Life Insurance Company for a cash
consideration of $293 million. The company deployed $1.25 billion
for acquisitions in growth regions. ACE Limited expects the
acquisitions to meet or exceed its long-term return on equity (ROE)
goal of 15% within 2-3 years. Extensive acquisitions have helped
the company write more premiums and deliver better numbers.
ACE continues to increase shareholders’ value. The Board in Aug
2011 authorized a $303 million worth of share buyback in addition
to the $197 million remaining under its previous authorization. As
of Feb 27, 2013, the company is left with $312 million under its
authorization. ACE also has a record of increasing its dividend
every year. The last dividend hike was 4.25% in May 2012.
Management also intends to propose a dividend hike of 4% at the May
16, 2013 general meeting. The company also scores strongly with the
credit rating agencies.
ACE is scheduled to release its first quarter 2013 results on Apr
22, after the closing bell. The Zacks Consensus Estimate for the
first quarter of 2013 is currently pegged at $1.87 representing a
year-over-year decline of 8.9%.
Over the last 30 days two out of 11 estimates moved upwards,
keeping the Zacks Consensus Estimate for full year 2013 at $7.71,
translating into a year-over-year improvement of 0.7%.
Other Stocks to Consider
Among others from the industry,
Cincinnati Financial Corporation (CINF),
Arch Capital Group Limited (ACGL) and AXIS
Capital Holdings Limited (AXS) carry a favorable Zacks
Rank #1 (Strong Buy) and are worth considering.
ACE LIMITED (ACE): Free Stock Analysis Report
ARCH CAP GP LTD (ACGL): Free Stock Analysis Report
AXIS CAP HLDGS (AXS): Free Stock Analysis Report
CINCINNATI FINL (CINF): Free Stock Analysis Report
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