Canopius Merger Leads To Zacks Downgrade

May 26, 2013

New York’s Tower Group — which announced the closing of its merger with Bermuda’s Canopius Holdings in March — was downgraded by Zacks from a “neutral” rating to an “underperform” rating in a report released on Thursday [May 23].

They currently have a $18.00 target price on the stock.

Zacks’ analyst wrote, “We are downgrading our recommendation on the shares of Tower Group to ‘Underperform’ from ‘Neutral’ on account of significant execution risk associated with the recently closed merger with Canopius.

“Tower’s first quarter earnings came in ahead of the Zacks Consensus Estimate. Earnings also grew year-over-year. The company’s merger with Canopius, is expected to enhance its Bermuda reinsurance business and accrue to overall profitability.

“We also view favorably the acquisitions made by Tower Group over the last few years, in order to diversify its business mix. Adequate loss reserves, solid capitalisation, moderate leverage, strong operating performance and disciplined underwriting are some of the other positives. Some of the headwinds faced by the company are execution risk associated with the recent investment in Canopius. Other concerning factors include the still soft property and casualty market, intense competition and business concentration in northeast US. “

Tower Group last posted its quarterly earnings results on Wednesday, May 8. The company reported $0.56 earnings per share [EPS] for the quarter, meeting the consensus estimate of $0.56. The company had revenue of $475.28 million for the quarter, compared to the consensus estimate of $415.48 million.

During the same quarter last year, the company posted $0.56 earnings per share. Tower Group’s revenue was up 1.9 percent compared to the same quarter last year. Tower Group has set its 2013 fiscal year guidance at $2.40-2.60 EPS. On average, analysts predict that Tower Group will post $2.31 earnings per share for the current fiscal year.

Several other analysts have also recently commented on the stock. Analysts at Keefe, Bruyette & Woods raised their price target on shares of Tower Group from $18.00 to $21.00 in a research note to investors on Monday, May 13. They now have a “market perform” rating on the stock. Separately, analysts at Compass Point initiated coverage on shares of Tower Group in a research note to investors on Friday, March 15. They set a “buy” rating and a $23.00 price target on the stock. Finally, analysts at KBW cut their price target on shares of Tower Group from $21.00 to $18.00 in a research note to investors on Thursday, March 14th. They now have a “market perform” rating on the stock.

One analyst has rated the stock with a sell rating, three have issued a hold rating and three have given a buy rating to the stock. The stock presently has an average rating of “Hold” and a consensus price target of $21.17.

The company also recently declared a special dividend, which is scheduled for Friday, June 21st. Stockholders of record on Monday, June 10 will be given a dividend of $0.17 per share. The ex-dividend date of this dividend is Thursday, June 6.

Tower Group, Inc., through its subsidiaries, offers a range of commercial, personal and specialty property and casualty insurance products and services to businesses in various industries and to individuals.

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