Is Alleghany Corporation (Y) Worth Adding to Your Portfolio?

On Sep 27, 2014, Zacks Investment Research upgraded Alleghany Corporation Y to a Zacks #1 Rank (Strong Buy).

Why the Upgrade?

Alleghany has been witnessing rising earnings estimates on the back of strong second-quarter 2014 results and an increase in the share repurchase authorization in the present quarter. Notably, this well-known insurer delivered positive earnings surprises in three of the last four quarters with an average beat of 19.6%.

Alleghany reported second-quarter results on Aug 4, 2014. Operating earnings per share came in at $9.06, which was higher than the Zacks Consensus Estimate by 13% and the year-ago earnings by 34%.

Underwriting results at the Reinsurance and Insurance segments of Alleghany were better than the year-ago quarter and this primarily drove the bottom line.

Alleghany's net premiums written rose in the quarter due to higher premiums in TransRe. Further, the company witnessed an increase in net investment income based on an increased allocation of the debt securities portfolio to higher yielding securities and more favorable reinvestment rates. Moreover, strong results at the Insurance and Reinsurance segments led to an increase in underwriting profit while lower catastrophe losses improved the combined ratio.

The financial position of Alleghany also remained strong at the reported quarter-end with an increase in assets, shareholders' equity and book value. Strong financial position prompted the company to authorize an additional share repurchase program of up to $350 million.

Additionally, Aleghany recently issued 4.90% senior notes to redeem a portion of the 5.75% notes. The issuance of lower coupon debt to redeem debt with a higher coupon rate is viewed favorably as it is expected to lower the average coupon rate, thereby reducing interest expense. This seems a prudent approach, given the present low interest rate environment that will help the company procure funds for the future without increasing interest expenses significantly.

The Zacks Consensus Estimate for 2014 increased 0.03% to $29.80 per share as an estimate was revised higher over the last 60 days.

Other Stocks to Consider

Investors interested in the insurance industry may also consider stocks like AmTrust Financial Services, Inc. AFSI, Federated National Holding Company FNHC and Navigators Group Inc. NAVG. All these carry the same Zacks Rank as Alleghany.

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