Zacks Bull and Bear of the Day Highlights: Crown Castle, Tellabs, The Travelers Companies, Hartford Financial Services Group and W.R. Berkley Corporation
CHICAGO, July 22, 2011 /PRNewswire/ -- Zacks Equity Research highlights Crown Castle (NYSE: CCI) as the Bull of the Day and Tellabs Inc. (Nasdaq: TLAB) as the Bear of the Day. In addition, Zacks Equity Research provides analysis The Travelers Companies (NYSE: TRV), Hartford Financial Services Group Inc. (NYSE: HIG) and W.R. Berkley Corporation (NYSE: WRB).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We upgrade our recommendation on Crown Castle (NYSE: CCI) to Outperform ahead of its second-quarter 2011 financial results. Increasing deployment of 3G/4G high-speed mobile voice, data, and video technology and significant growth of mobile Internet traffic have driven robust results in the last couple of quarters.
The company continues to perform well with respect to several parameters, including its core site rental revenue and gross margin, adjusted EBITDA, as well as recurring cash flow. We believe future financial results will be driven by substantial demand for more tower space to facilitate high-speed 3G/4G wireless networks. Massive growth of mobile data-enabled devices e.g. smartphones and tablets are examples of this trend.
Our long-term view regarding wireless tower industry remains intriguing, and we believe Crown Castle is well positioned to successfully capitalize on these opportunities. Our 12-month price target is $51.
Our Underperform recommendation on Tellabs Inc. (Nasdaq: TLAB) is backed by our assessment that the poor performance of the company will continue in the near future. First-quarter 2011 financial results were well below the Zacks Consensus Estimates and the second-quarter 2011 outlook provided by management was disappointing.
What is important is that Tellabs' globally reputed high-margin digital cross-connect products are also showing a downtrend. Therefore, gross margin of the company suffered a setback in the previous quarter and is expected to remain at low levels in the near term.
Tellabs is facing serious problems with its key customer AT&T, which accounts for 35% of total revenue in 2010. The company is aggressively targeting the mobile Internet market since its legacy switching products are gradually losing relevance. In the meantime, we do not find any immediate catalyst for Tellabs.
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CAT Losses Hurt Travelers
The Travelers Companies (NYSE: TRV) reported an operating loss of 91 cents per share in the second quarter, wider than the Zacks Consensus Estimate of 62 cents. Results were far behind earnings of $1.39 in the prior year quarter. The operating loss was $377 million, comparing unfavorably with earnings of $690 million in the second quarter of 2010.
The company suffered hugely due to catastrophe losses. Catastrophe losses in the quarter totaled $1.09 billion or $2.56 per share.
Including net realized investment gains of $13 million or 3 cents per share, Travelers reported a net loss of $364 million or 88 cents per share compared with earnings of $670 million or $1.35 per share in the second quarter of 2010. The prior-year quarter realized a net investment loss of $20 million or 4 cents a share.
Operational Update
Net written premiums during the quarter increased 3% year over year to $5.8 billion, largely attributable to gains in pricing across all the business segments and renewing Business Insurance customers purchasing more insurance.
Net investment income dropped 1% year over year to $758 million during the quarter largely attributable to lower reinvestment rates in the fixed income portfolio and lower average invested assets.
Travelers' underwriting loss was $924 million in the quarter, plummeting from a gain of $119 million in the prior-year quarter reflecting a higher combined ratio of 125% deteriorating from 95.2% in the second quarter of 2010. Higher catastrophe losses, partially coupled with a decrease in net favorable prior year reserve development led to the overall decline in combined ratio.
Total revenue in the quarter under review was $6.4 billion, up 3% year over year, driven largely by the increase in premiums earned. The results also surpassed the Zacks Consensus Estimate of $6.2 billion.
Segment Update
Business Insurance: Net written premium increased 3% year over year to $2.9 billion in the quarter.
Combined ratio deteriorated to 122.9% from 91.8% in the second quarter of 2010, mainly due to an increase in catastrophe losses and a decrease in net favorable prior year reserve development.
Operating income plummeted to $11 million in the second quarter of 2011 from $567 million in the year-ago quarter attributable to lower net investment income coupled with an underwriting loss.
Financial, Professional & International Insurance: Net written premium declined 1% year over year to $879 million in the quarter. Combined ratio deteriorated to 84.8% from 83.3% in second-quarter 2010, driven by an increase in catastrophe losses.
Operating income decreased 5% year over year to $164 million attributable to lower net investment income as well as lower underwriting gains.
Personal Insurance: Net written premium improved 3% year over year to $2.1 billion in the quarter. Combined ratio increased to 145.5% from 105.9% in the second-quarter of 2010 largely driven by an increase in catastrophe losses, but partially offset by an increase in net favorable prior year reserve development.
Operating loss was $471 million, plummeting from a profit of $19 million, largely due to an increase in underwriting loss.
Dividend and Share Repurchase
Travelers paid out $174 million in dividends in the quarter.
Travelers also bought back 3.9 million shares for $237 million during the quarter. The company expects the share buyback during the second half of 2011 to total $400 million.
Our Take
Travelers focuses on enhancing its shareholder value through continued share buybacks, which continue to have a positive impact on its earnings per share. Based on a high retention rate, pricing gains, favorable renewal rate changes, favorable prior year reserve development, prudent underwriting practice and a strong capital position, Travelers is poised to perform better going forward. However, exposure to significant catastrophic events remains a concern.
We thus maintain our "Underperform" recommendation on Travelers. The quantitative Zacks # 4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.
Based in New York, The Travelers Companies, through its subsidiaries, provide a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and in select international markets. It competes with Hartford Financial Services Group Inc. (NYSE: HIG) and W.R. Berkley Corporation (NYSE: WRB).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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