Markel Corp.: A Strong Buy - Analyst Blog

On Apr 16, 2013, Zacks Investment Research upgraded Markel Corp. (MKL) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Markel has been experiencing rising earnings estimates on the back of improved fourth-quarter 2012 results. Moreover, the company’s strong underwriting capabilities as well as improved debt levels and coverage ratios have been impressive. Additionally, this property-casualty insurer delivered positive earnings surprises in all of the last 4 quarters with an average beat of 113.3%.

On Feb 4, Markel reported fourth-quarter 2012 operating earnings of $5.78 per share, which exceeded the Zacks Consensus Estimate of a loss of $2.70 and earnings of $5.19 per share in the year-ago quarter.

Results were supported by 17.9% growth in operating revenue, driven by higher premiums and net investment income. Although operating expenses were higher than expected, tax expense declined significantly and combined ratio improved to 97% from 102% in the year-ago quarter. Even book value per share increased 15% at 2012-end.

Markel’s strategy of growth through acquisitions has been scoring well with the ratings agencies. The latest acquisition of Alterra Capital Holdings Ltd. (ALTE), scheduled to culminate by mid-2013, is further projected to improve Markel’s debt to capital ratio by 100 basis points (bps) to 27%. Additionally, the acquisition is expected to improve the debt to equity ratio by 400 bps to 34% over the same time period. The creditworthiness of the company also helps retain investors’ confidence in the stock.

Based on Markel’s fundamental strength and claims management, the Zacks Consensus Estimate for 2013 rose 1.9% to $19.08 per share in the last 60 days. The estimate for 2014 is pegged at $22.45, up 4.9% in the last 60 days. Meanwhile, no downward revision in estimates was witnessed for both the years.

Moreover, the Most Accurate Estimate for Markel’s 2013 earnings stands at $19.50 a share, resulting in a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +2.2%.

Other Stocks to Consider

Apart from Markel, other stocks that are outperforming in the insurance sector include Hilltop Holdings Inc. (HTH) and Everest Re Ltd. (RE). Both the stocks carry a Zacks Rank #1 (Strong Buy).

ALTERRA CAP HLD (ALTE): Free Stock Analysis Report

HILLTOP HLDGS (HTH): Free Stock Analysis Report

MARKEL CORP (MKL): Free Stock Analysis Report

EVEREST RE LTD (RE): Free Stock Analysis Report

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