Berkley Enhances Shareholder Value - Analyst Blog
November 04 2011 - 12:30PM
Zacks
On November 3, 2011, property and casualty insurer W. R.
Berkley Corp. (WRB) announced that its Board has increased
its share repurchase authorization to 10 million shares, which
translates into approximately 7% of the company’s 144.5 million
outstanding shares as of September 30, 2011.
The buyback
increases a company’s earnings per share by reducing the number of
shares outstanding and is also indicative of the fact that the
company’s financial position is strong enough to enhance
shareholder value.
Berkley has been aggressively repurchasing shares. Since 2007,
it has bought back about 30% of its outstanding shares.
The latest share repurchase authorization marks such a move for
the second time so far this year. The company has taken
similar action earlier in May.
Berkley has been aggressively buying back shares to support
its bottom line amid weak property and casualty market. The company
has been facing premium
declines since the onset of soft market conditions in 2006. To
position itself for growth, the company has made a number of
investments and has started 21 new units in the past three
years.
Though recently, management spoke about improvement in insurance
rates in certain lines of businesses, a sustainable turnaround in
the underwriting cycle is yet to be seen. In addition to theits
annual dividend by an average
of more than 19% annually over the past five years, giving an
implicit signal of confidence in the strength of its balance sheet
and reserve position.
Low interest rates are
adversely affecting profitability, by limiting return on
investment. Until these conditions improve, we expect the company
would continue to take defensive actions like share buybacks. On
the other hand, the company announced the regular quarterly
dividend of 8 cents per share which was raised last quarter from 7
cents per share. Dividends at Berkley have increased at a 5-year
CAGR of 24%.
We maintain our Neutral
recommendation on W. R. Berkley. The stock also retains a
Zacks #3 Rank, which translates into a short-term Hold rating.
Berkley competes closely with a host of property and casualty
carriers such as The Chubb Corp. (CB), The
Travelers Companies (TRV), XL Group plc
(XL) and The Allstate Corp. (ALL).
ALLSTATE CORP (ALL): Free Stock Analysis Report
CHUBB CORP (CB): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
BERKLEY (WR) CP (WRB): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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