Mercury General (NYSE:MCY), the property insurance company, missed EPS estimates when they reported on Monday, mainly due to lower revenues and catastrophic rainstorms in California and homeowners’ losses in Florida.
Net loss in Q4 for 2010 was of $23.6 million or $0.43 per diluted shares, significantly below analysts’ estimates of $0.70 according to Reuters.
The company declared plans to exit the Florida homeowners insurance market by 2012. It also stated that the approximately 8000 policyholders in the sunshine state will be alerted directly by the company in order to provide the mandated 180 day non-renewal notice.
The company's combined ratio, or the percentage of premiums spent on claims and expenses, rose to 109.9% from 98.1%.
Yes, it's been a rough day for MCY, but we crunched historical data and found several reasons to keep the stock on a watchlist.
All data and industry comps sourced from Fidelity.
Interactive Chart: Compare the performance of MCY against the S&P 500 index.
Reason #1 - Cash Flow Growth: The company has demonstrated rapid cash flow growth over the last five years, which may lower their risk going forward. Five year average cash flow growth at 7.73%, much higher than the industry average at 4.15%.
Reason #2 - Increased Competitiveness: The company's capital spending accelerated by 6.77% over the last five years, much faster than the industry average of 2.22%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.
Reason #3 - A Good Management Team: Judging by trailing twelve month (TTM) ratios like Return on Equity (ROE), Return on Assets (ROA) and Return on Invested Capital (ROI), it's clear that the company's management is doing an excellent job. TTM ROE at 11.66%, higher than the industry average at 8.51%, TTM ROA at 4.97% vs. the industry average at 1.95%, and TTM ROI at 10.14%, higher than the industry average at 6.59%. The company also outperformed its industry competitors in terms of the TTM Return on Sales ratio (7.51% vs. the industry average at 7.14%).
Reason #4 - Profitability: When compared to industry competitors, the company reported better than average profit margins during the most recent quarter. Gross margins came in at 19.57%, higher than the industry average at 14.92% (most recent quarter, annualized). Operating margin came in at 17.93%, higher than the industry average at 14.26%, while net profit margin came in at 17.93% vs. the industry average at 14.26%.
Reason #5 - Insider Buying: Insiders appear to be optimistic on the outlook for the company. On a net basis, they've purchased an average of 11,087 shares per year (over last 2 years).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.