Bull of the Day: Aspen (AHL) - Bull of the Day
May 06 2014 - 5:01AM
Zacks
This P&C insurer and
reinsurer continues to benefit from its diverse business mix,
underwriting expertise and improving industry trends. Rising
earnings estimates sent the stock back to a Zacks Rank # 1 (Strong
Buy) last month.
About the Company
Founded in 2002 and based
in Hamilton, Bermuda, Aspen Insurance Holdings (AHL) is a global
insurance and reinsurance company. It operates through wholly-owned
subsidiaries and offices in Bermuda, France, Germany, Ireland,
Singapore, Switzerland, the United Kingdom and the United
States.
AHL had assets of $10.2
billion and over 900 employees at the year ended 31 December
2013. The company/its operating subsidiaries are rated ‘A (Strong)’
by S&P, ‘A (Excellent)’ by AM Best and ‘A2 (Good)’ by
Moody’s.
Solid First
Quarter Results
Aspen reported its Q1 results on April 23, 2014. Net operating
income for the quarter came in at $1.55 per share, handily beating
the Zacks Consensus Estimate of $0.98 per share by 58% and also up
46% from $1.06 per share realized during Q1 2013.
Insurance segment gross written premiums was $383.3 million, up
14.8% from the prior-year quarter, thanks mainly to continued
growth from the U.S. teams.
Reinsurance segment gross written premiums of $472.2 million
increased 7.4%, mainly due to growth in Catastrophe and other
Property lines of business.
Net investment income for the quarter was $49.5 million slightly
ahead of $48.3 million for the first quarter of the previous
year
Management Guidance
Aspen management reiterated their target of a 10% operating ROE in
2014. Further, they expect operating ROE to increase in each of
2015 and 2016.
Per management, the expected acceleration of ROE will come
primarily from growth in the U.S. Insurance business, portfolio
optimization initiatives, rising interest rates and capital
management.
Buyout Offer from Endurance
Holdings
Last month, Endurance
Holdings announced an unsolicited offer for Aspen for $47.50 per
share in cash and Endurance shares. According to Aspen management,
the offer significantly undervalued Aspen’s
business.
Further
in their view, Endurance stock as consideration in a combination is
not appealing due to its unattractive business mix and quality of
earnings issues.
After turning down the
offer, Aspen adopted a one-year shareholder rights plan,
which would be triggered if a person or group buys a stake of
10% or higher in Aspen, allowing other shareholders to buy shares
in the company at a discount.
Positive Earnings Estimates Revisions
As a result of continued solid performance, the Zacks Consensus
Estimates for 2014 and 2015 have increased to $4.24 per share and
$4.06 per share, from $3.59 per share and $3.85 per share, 30 days
ago.
Aspen has delivered positive earnings surprises in three out of
last four quarters of 2013—with an average quarterly surprise of
21%. Looking at longer-term, the company has delivered a ‘beat’ in
11 out of last 12 quarters.
The following chart shows AHL’s excellent track record of beating
estimates:
![](http://static.zacks.com/images/zacks/blogs/1399323964_scaled_425.jpg)
Returning Cash to Shareholders
During the quarter, Aspen repurchased its shares for a total cost
of $30.9 million. The company had $193.3 million remaining under
its current share repurchase authorization at the end of the
quarter.
AHL also increased its quarterly dividend to of $0.20 per share,
from $0.18 per share earlier.
Solid Industry Outlook
Improving US economy and rising capital levels P&C insurers in
particular continue to benefit from pricing improvement and remains
on track for growth in 2014. Pricing for reinsurance also sees slow
improvement now.
Insurance industry is currently ranked 31 out of 265 Zacks
industries (top 12%).
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