Bull Of The Day: Alleghany

| About: Alleghany Corporation (Y)

Rising estimates resulting from an excellent quarterly performance have sent Alleghany Corporation (NYSE:Y) this insurer to Zacks No. 1 (Strong Buy) rank again and it is the Bull of the Day.

About the Company

Alleghany is a multi-line insurance company, operating through its subsidiaries Transatlantic Holdings (reinsurer), RSUI Group (underwriter of property and liability specialty Insurance), Capitol Transamerica Corporation (underwriter of small commercial property, casualty and surety insurance), and Pacific Compensation Corporation (underwriter of workers' compensation insurance).

Excellent Second-Quarter Results

The company reported its second-quarter 2013 results on Aug. 5, 2013. Operating net earnings of $6.78 per share were substantially higher than the Zacks Consensus Estimate of $4.25 per share. The company has delivered a positive surprise in all of the previous four quarters, with an average quarterly surprise of 62.2%.

Better-than-expected earnings were a result of increase in net investment income (up 10.5% year over year) and lower costs and expenses. A decline in net loss and loss adjustment expenses, other operating expenses and corporate administration also aided the improvement. Alleghany's combined ratio for the 2013 second quarter was 92.6%, compared with 83.9% in the 2012 second quarter. The company spent $40.4 million in share buybacks during the first two quarters of the year. It had $241.9 million remaining on its currently effective $300 million share repurchase authorization.

Rising Estimates

Zacks consensus estimate for the current quarter has increased to $4.53 per share from $4.11 per share 60 days ago and similarly, the estimate for the current year has gone up to $30.42 per share from $26.00 per share.

The Bottom Line

For the five years ended Dec. 31, 2012, Alleghany's common stockholders’ equity per share increased at a compound annual rate of 6.1%, compared with a compound annual rate of return of 1.6% for the S&P 500 over the same time period. Management believes that with their excellent portfolio of investments and businesses, they can produce 7%-10% growth in book value per share per year over the long term, and can double shareholder value at least every 10 years.

With an excellent portfolio and exceptional management philosophy, Alleghany looks like a mini-version of Berkshire Hathaway. Alleghany is a Zacks Rank No. 1 (Strong Buy) stock. It also has a Zacks recommendation of "Outperform." Furthermore, the Zacks Industry rank of 7 (out of 265) also indicates strong potential for outperformance in the short to mid-term. I believe that this stock will be an excellent long-term addition to any portfolio.

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