AMSF AMERISAFE Inc

Amerisafe, Inc.'s (AMSF) second-quarter earnings lagged the Zacks Consensus Estimate substantially, due to high underwriting loss and reduced investment income coupled with higher expenses, which significantly deteriorated the combined ratio, operating cash flow and ROE.

The top-line growth was only cushioned by higher premiums written and earned as other revenue sources failed to showcase growth. Though the pricing environment has witnessed some improvement, the company is expected to face uncertainty for the next few quarters as the market weakness continues to hurt payrolls.

Our six-month target price of $18.00 per share equates to about 14.6x our earnings estimate for 2011. With no dividend supplement, this target price implies a total expected negative return of 7.8% over that period, which is consistent with our Underperform recommendation.
 
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