Merrill Lynch downgraded Allmerica Financial (AFC) to near-term neutral from buy and long-term neutral from strong buy.
On Tuesday the company posted a $0.52 second quarter operating loss; analyst Jay Cohen notes the company missed his earnings estimate of $0.77 per share. Cohen says the company took a $1.73 charge related to deferred acquisition costs (DAC), and guaranteed minimum death benefit expenses related to weak stock markets.
Given the downtrodden stock markets in the third quarter, Cohen says he expects the company to take an additional writedown, and again face higher minimum death benefit expenses. He says earnings per share visibility is worse and he sees higher volatility. Cohen notes should the stock markets decline further, Allmerica could face problems raising capital. He cut his $3.30 2002 earnings per share estimate to $1.35, and cut the $4.20 2003 estimate to $3.00.