MDC Holdings, Park Electrochemical, AmTrust, Markel and Travelers highlighted
as Zacks Bull and Bear of the Day
CHICAGO, July 10, 2013
CHICAGO, July 10, 2013 /PRNewswire/ --Zacks Equity Research highlights MDC
Holdings (NYSE:MDC-Free Report) as the Bull of the Day and Park
Electrochemical (NYSE:PKE-Free Report) as the Bear of the Day. In addition,
Zacks Equity Research provides analysis onthe AmTrust (Nasdaq:AFSI-Free
Report), Markel (NYSE:MKL-Free Report) and Travelers (NYSE:TRV-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Earnings estimates have been soaring for MDC Holdings (NYSE:MDC-Free Report)
as the homebuilder continues to benefit from a rebounding housing market. The
significant increase in demand for new homes not only means higher revenues
for MDC but also significantly higher profit margins as the company is able to
raise prices and reduce incentives while leveraging its fixed expenses.
It is a Zacks Rank #1 (Strong Buy) stock.
MDC Holdings Inc. is a homebuilder that has been building under the name
"Richmond American Homes" for 40 years. It primarily operates in the Western
and Mountain regions of the United States with some exposure in the Eastern
The recent rise in interest rates has hurt shares of homebuilders like MDC,
but the selloff could be a great buying opportunity as the fundamentals of MDC
look very attractive.
MDC Holdings reported strong first quarter results on May 2. Earnings per
share came in at 45 cents, crushing the Zacks Consensus Estimate of 26 cents.
It was a huge increase over the 4 cents it reported in the same quarter last
Total revenue surged 77% to $344.3 million, well ahead of the consensus of
$294.0 million. Home sale revenues rose a whopping 80% to $331.7 million,
which was driven by a 64% jump in home delivered. The average selling price
for homes closed rose 9% to $325,900.
The gross profit margin expanded 330 basis points to 17.4% of revenue as the
company continued increasing prices and decreasing incentives as demand picked
up considerably. Meanwhile, selling, general and administrative expenses fell
from 18.5% to 14.5% of revenue as the company leveraged its fixed expenses.
Bear of the Day:
Park Electrochemical (NYSE:PKE-Free Report) recently reported its 3rd straight
earnings miss thanks in large part to a -6% decline in net sales.
Analysts revised their estimates meaningfully lower for both 2014 and 2015
following the company's most recent earnings miss on June 26. This sent the
stock to a Zacks Rank #5 (Strong Sell) stock.
Despite this, shares currently trade at a premium on a forward P/E basis.
Investors may want to avoid PKE until its earnings momentum turns around.
Park Electrochemical Corp. manufactures high-technology digital and
RF/microwave printed circuit materials primarily for the telecommunications
and internet infrastructure and high-end computing markets and advanced
composite materials, parts and assemblies for the aerospace markets. Sales of
printed circuit materials products account for approximately 85% of its total
Park Electrochemical reported somewhat disappointing first quarter fiscal 2014
results on June 26. Earnings per share came in at 25 cents, missing the Zacks
Consensus Estimate by 4 cents. It was the company's third straight earnings
The company continued to post lethargic top-line results. Net sales declined
6% to $43.4 million, which was well below the consensus of $47.0 million.
Despite this, the operating profit margin expanded a solid 190 basis points
which led to a 4% increase in net income.
Solutions for the Income Investor
Here are the Price to Book Ratios and Price to Earnings ratios for various
types of insurers:
P/B 2.4, P/E 14.9
Average Price to Book: 0.9, Average P/E: 10.3
P/B 0.8, P/E 9.1
P/B 0.8, P/E 11.2
P/B 0.8, P/E 12.1
P&C Builds Up Cash
Gather up all the facts and you can see this:
P&C cash flow over the last four quarters increased in a material way.
It reflected better paid loss ratios and higher premium growth. With modest
growth in the economy raising premium volume further, and commercial insurers
achieving mid-single-digit rate increases, cash flow should increase for P&C
insurers over the next year too.
What about the headwinds?
The insurance rate environment in the P&C space is expected to soften somewhat
in the next 12 months. Going forward, losses can diverge for different
insurers. Exposure to catastrophic events always lurks in the P&C background,
much like airlines and oil price shocks. Specific factors can make loss trends
and rates different by line of P&C business.
However, this much should be clear to you. GDP growth raises P&C earnings and
lowers macro risks. Bullish analysts add in a continued 'normalization' of
catastrophes, couple it to high-single-digit rate increases and note a pricing
dislocation in many individual insurance markets.
This is a medley of broad and specific factors. They can allow P&C insurers to
grow cash flow at greater levels than those seen in softer markets. In early
July, to no surprise, the P&C focused insurance industry is a Zacks Industry
Rank of #41 out of 259 industries. Multi-line insurers are #27.
P&C insurers expected to see strong cash flow growth: AmTrust
(Nasdaq:AFSI-Free Report) a Zacks Rank #2 with an Outperform Rating and a
dividend yield of 1.4%, Markel (NYSE:MKL-Free Report) a Zacks Rank #3 with an
Outperform rating, and Travelers (NYSE:TRV-Free Report) a Zacks Rank #3 with
an Outperform rating and a dividend yield of 2.5%.
Note I chose Outperform ratings over the current Zacks Rank. Most income
investors are longer-term investors, meaning six months or more.
What comments sum it up for the besieged income investor?
Broaden your target. Don't aim solely at high dividend yields. Focus on the
underlying business case for building and sharing cash flow in an improving
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