Shares of Axis Capital Holdings Limited AXS have been on an uptrend (gaining 10.9%) since the company’s announcement of solid third-quarter results on Oct 26. Shares of Axis Capital outperformed the Zacks-categorized Property and Casualty industry (that gained 7.8%).
Why the Stock Should be in Your Portfolio
Axis Capital’s revenues have been consistently increasing and growing at a 10-year CAGR of 3.7%. New business opportunities across the company’s lines of business and geography have helped it achieve growth in premium writings, which in turn, has been increasing revenues. Moreover, the company continues to build on its Specialty Insurance, Reinsurance, and Accident and Health businesses to pave the way for long-term growth. AXIS Capital also remains focused on augmenting its portfolio mix and improving underwriting profitability. This apart, the insurer has been strengthening the casualty and professional lines in the insurance segment, particularly motor and reinsurance.
In spite of the increase in expenses, AXIS Capital is well poised to capitalize on the available opportunities by utilizing its resources prudently, enhancing efficiencies and better serving clients and brokers across the globe. Shutting down its Australian operations will result in annual run-rate pre-tax cost savings of about $30 million to be greatly realized in 2016. Margins that have been decreasing over years are likely to get a boost.
Axis Capital has been deploying capital effectively through shareholder-friendly moves. The company is expected to pay back at least 100% of annual operating earnings to its shareholders via common dividends and share repurchases, unless it finds other growth avenues to invest the same.
Valuation is also attractive at present as the stock is currently trading at a forward P/E of 14.6x, a 48% discount to the industry average of 28.1x. On a price-to-book basis, shares are trading at 1.0x compared with the industry average of 1.4x. Axis Capital has a trailing 12-month return on equity (ROE) of 8.6%, which is substantially higher than the industry average of 7.0%.
Also, solid estimate revisions have resulted in Axis Capital’s Zacks Rank #2 (Buy). The company has witnessed its full-year estimates moving north over the last 60 days. The insurer delivered positive surprises in the last four quarters with an average beat of 30.9%. The long-term expected earnings growth is pegged at 7% as against the industry average of 6.5%.
Other Stocks to Consider
Other well-ranked property and casualty (P&C) insurers are Alleghany Corporation Y, Arch Capital Group Ltd. ACGL and First American Financial Corporation FAF. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany Corporation, which is engages in P&C reinsurance and insurance businesses in the U.S. and internationally, beat estimates in three of the last four quarters with an average positive surprise of 20.52%.
Arch Capital, a provider of property, casualty, and mortgage insurance and reinsurance products worldwide surpassed estimates in the last four quarters with an average positive surprise of 9.27%.
First American Financial, a provider of financial services, surpassed estimates in the last four quarters with an average positive surprise of 14.32%.
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