Alleghany (Y) Down 39.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Alleghany (Y). Shares have lost about 39.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Alleghany due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Alleghany Q4 Loss Widens Year Over Year, Revenues Rise

Alleghany Corporation incurred fourth-quarter 2019 operating loss of $6.09 per share, against the Zacks Consensus Estimate of operating profit of $8.86. Also, the quarterly loss was wider than the year-ago quarter’s operating loss of $4.35 per share.

The company reported net income of $1.98 per share in the reported quarter against the year-ago quarter’s loss of $48.30.

The company witnessed higher investment income and growth in premiums, offset by rise in expenses.

Full-Year Highlights

For 2019, Alleghany delivered operating income of $23.77 per share, missing the Zacks Consensus Estimate by 38.3%. However, operating income increased 47.4% from the previous year.

Revenues improved 9.1% year over year to $5.9 billion.

Operational Update

Revenues for the fourth quarter improved 9.5% year over year to $1.6 billion.
Net premiums written rose 17.6% year over year to $1.5 billion.

Net investment income came in at $136.6 million in the quarter under consideration, up nearly 11.2% year over year. The increase in net investment income was primarily due to higher interest income, partially offset by lower dividend income.

Fourth-quarter underwriting loss was $199 million, down 20% from the year-ago quarter’s loss of $249 million.

Total costs and expenses escalated 5.7% to $2.2 billion.

Segment Update

Reinsurance Segment: Net premiums written improved 15% to $1.2 billion owing to growth in TransRe’s domestic operations, which includes the impact of TransRe’s Aug 29, 2018 purchase of the renewal rights to a block of U.S. treaty reinsurance business.

Underwriting loss of $162.8 million was narrower than year-ago quarter’s loss of $208.9 million. Also, the segment’s fourth-quarter combined ratio improved 570 basis points to 114.4%.

Insurance Segment: Net premiums written increased 27% to $342.8 million.

Underwriting loss of $36.5 million was narrower than the year-ago quarter’s underwriting loss of $40.3 million. The combined ratio of the reported segment improved 310 basis points to 111.8%.

Financial Update

Debt balance of $1.8 billion increased 4.9% from 2018-end level.

Allegheny’s shareholder equity at the end of the fourth quarter increased 14.1% to $8.8 billion from $7.7 billion as of Dec 31, 2018.

Book value per share was $611 as of Dec 31, 2019, up 15.8% from the level as of Dec 31, 2018.

Share Repurchase Update

As of Dec 31, 2019, the company had $627 million remaining under its share repurchase authorization.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.95% due to these changes.

VGM Scores

Currently, Alleghany has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Alleghany has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.