White Mountains Insurance: Zacks’ Bull of the Day Play

Headquartered in Hamilton, Bermuda, White Mountains Insurance Group (WTMSnapshot Report) is a property and casualty insurer and reinsurer. The company conducts its principal businesses through OneBeacon (specialty insurance), Sirius Group (global reinsurance), HG Global (U.S. municipal bond reinsurance) and White Mountains Advisors (Investment management).

Rising estimates sent the stock back to Zacks Rank # 1 (Strong Buy). It is the ‘Bull of the Day’.

Solid Second Quarter Results and Agreement to Sell Sirius

On July 27, the company reported its fiscal second quarter results. Adjusted EPS of $8.30 was way ahead of the Zacks Consensus Estimate of $5.82 per share. The company has beaten the consensus in three out of last four quarters, with an average quarterly surprise of about 28%.

Along with the results, the company announced a definitive agreement to divest its subsidiary Sirius International Insurance to the Singaporean investment unit of China Minsheng Investment Corp. The transaction is expected to close within six months. This deal is expected to boost the adjusted book value of White Mountain by $65 per share and increase its excess capital to about $2 billion.

Returning Cash to Shareholders

The company recently announced its plan to repurchase 500,000 shares in addition to 200,000 shares remaining under the current buyback authorization. Repurchases will be funded with available cash.

Rising Estimates

Thanks for improving outlook, analysts have raised their estimates for the company. Zacks Consensus Estimates for the current quarter and the fiscal year have gone up significantly to $4.81 per share and $16.25 per share respectively, from $2.26 and $13.70, 7 days ago.

Solid Industry Outlook

P&C insurance industry is currently ranked 59 out of 265 Zacks industries (top 22%).
Improving economic picture is positive for all insurers as their business volume is highly correlated to the health of the economy.

Per Zacks Industry Outlook “looking at the broader trends, the overall health of the industry appears to be improving despite the emergence of new issues. And learning from past experience, insurers are spontaneously resorting to expense-saving measures to tread water. If insurers manage to overcome the short-term resistance that may be holding back premium rate increases, they should ultimately witness margin expansion. Also, in the absence of federal regulation, insurers can take on new challenges with the ample capital that they now have.”

The Bottom Line

WTM is a Zacks Rank#1 (Strong Buy) stock. Further a high Zacks Industry rank greatly increases the likelihood of short-to-mid- term outperformance.

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