Assurant Inc.'s (AIZ) core 2Q08 results were a nickel below our expectation. Based on diversified product and distribution platform and technology focus, AIZ has delivered solid operating earnings over the last five years.
However, continued dependence on third-party reinsurance and significant growth in specialty property exposes the group's earnings to a greater degree of variability over the near term. Therefore, we elect to keep our rating of the shares of this company as a Hold.
Following our review of AIZ's 2Q08 results we are decreasing our FY08 earnings expectation to $6.50 per share from $6.55 per share and our FY09 earnings expectation to $6.85 per share from $6.90 per share previously. The shares of Assurant currently trade at a multiple of 1.57x book value, excluding AOCI, of $36.68 per share for 2Q08 and 1.62x the $35.53 book value per share.
Based on general earnings trends, negligible catastrophe losses, we think the previously contracted price-to-book value of 1.60x should continue to be viewed more as a bottom range for this company. The company's price-to-book multiple is in-line with its peer group median level. We expect the company will eventually benefit from the overhangs in the sub-prime market with an offset in the price-to-book multiple to about in the coming quarters. For now however, we anticipate the company should trade close to 1.65x level, down from the close to priced-to-perfection level of 2.00x, recorded within the past year.
Therefore, we are decreasing our six-month target price to $63.40 per share from $70.60 per share, based on our book value expectation for $38.40 per share at December 31, 2008. At the current price level, this would imply a 10.9% total return potential over the next six-months.
Read the full analyst report on AIZ
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