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AXIS Capital Eyes Long-term Growth; Cat Loss a Drag (Revised)

On Apr 15, 2016, we issued an updated research report on AXIS Capital Holdings Limited AXS.

AXIS Capital continues to strengthen its Specialty Insurance, Reinsurance, as well as Accident and Health businesses. Moreover, in order to boost shareholders’ value and ramp up its growth profile, the property and casualty (P&C) insurer has devised plans to enhance efficiencies and better serve clients and brokers across the globe.  

In early Oct 2015, the company announced its decision to shut down its Australian division of retail insurance operations to boost profitability. This move reflected the company’s objective to make organizational changes to enhance profitability in a demanding global marketplace. The winding up of the company’s Australian division resulted in a workforce reduction of about 100.

The company continuously undertakes strategic initiatives to grow. Last December, the company received approval to build an underwriting division on Lloyd’s China Platform which will focus on treaty reinsurance business on the said platform. Also, a subsidiary of AXIS Capital received permission to establish a representative office in Dubai. Further, its AXIS Healthcare subsidiary unveiled a new insurance coverage to protect hospitals against losses from pandemics.

AXIS Capital has actively engaged in investor-friendly moves like share buybacks and dividend hikes to retain investor confidence. With respect to dividend hikes, the company declared a 21% hike in its quarterly dividend in the final quarter of 2015. Also, the company increased its share repurchase authorization to $750 million of common shares, effective through Dec 31, 2016.  As of Feb 2, 2016, the insurer has $734 million left under its authorization. AXIS Capital’s strong cash position, retained earnings and solid operational performance should continue to support the company’s buyback activities and dividend payouts going ahead.

However, exposure to catastrophe losses has adversely impacted the underwriting results of the company and, thus, remains a concern. Moreover, stiff competition in the reinsurance industry may account for slow growth and lower profitability for the company. Also, escalating expenses and dependence on a limited number of brokers for revenues remain headwinds.

Going by the surprise trend, the company delivered positive surprises in two of the last four quarters. AXIS Capital is set to report first-quarter 2016 results on Apr 26. The Zacks Consensus Estimate for the same is currently pegged at $1.04 per share, which translates to a year-over-year decline of 22.72%.

However, our proven model shows that the company is likely to beat earnings because it has the perfect combination of two key ingredients. The company holds a Zacks Rank #3 (Hold) and has a +0.96% Earnings ESP, which makes us reasonably confident of a positive earnings beat.

Stocks to Consider

Some better-ranked P&C insurers are Hallmark Financial Services Inc. HALL, Markel Corp. MKL and The Hanover Insurance Group, Inc. THG. Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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(We are reissuing this article to correct a mistake. The original article, issued on Mar 24, 2016, should no longer be relied upon.)

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AXIS CAP HLDGS (AXS): Free Stock Analysis Report
MARKEL CORP (MKL): Free Stock Analysis Report
HALLMARK FINL (HALL): Free Stock Analysis Report
HANOVER INSURAN (THG): Free Stock Analysis Report
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