Amtrust Financial Services, Inc. (AFSI) is currently a value selling at 11 or 12 times earnings, and the company has been able to earn an ROE in the high teens, uncommon in the insurance industry, and is also likely to grow EPS over the next couple of years, says Peter Neumeier, Founding Partner and Portfolio Manager at Neumeier Poma Investment Counsel, LLC.
“[Amtrust] is a specialty insurance company that in our view is unique in the small-cap market….They specialize in smaller policies where they are able to use their own proprietary technology to assess the risk and deliver the service efficiently,” Neumeier said. “This is a company that also has been superb at acquiring companies in their specialty and integrating them smoothly. We expect that to continue. Add it all up and you have a company that is able to earn a return on equity in the midteens or even the high-teens, a ROE which is unheard of in the insurance business.”
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AFSI is currently selling at a value of 11 or 12 times earnings, and Neumeier expects the company to continue to grow its EPS rate over the next couple of years, increasing the stock’s worth to over $50 as opposed to around $40 today.
“About 30% of their revenue is recurring fee income, which suggests to us that the company is worth a forward p/e of more like 14 times or 15 times. And again, we do like specialty companies. Amtrust Financial definitely fits that bill, and we think they’ll continue growing over the next couple of years in a low-teens EPS rate and that therefore, about a year from now, the company could earn about $3.75 in EPS, and the stock should be worth over $50. Today, it sells for about $40,” Neumeier said.
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