Zacks Bull and Bear of the Day Highlights: Weyerhaeuser, Randgold Resources, Allstate, PartnerRe and Montpelier Re
Zacks Equity Research
For Immediate Release
Chicago, IL – April 24, 2013 – Zacks Equity Research highlights Weyerhaeuser (WY) as the Bull of the Day and Randgold Resources (GOLD) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Allstate Corp. (ALL), PartnerRe Ltd. (PRE) and Montpelier Re Ltd. (MRH).
With strong revenue growth potential and excellent cost management, Weyerhaeuser (WY) seems to be a position to deliver another positive surprise when it reports its earnings on Friday.
Further, with improving outlook for the industry, this Zacks Rank #1 (Strong Buy) stock looks very attractive as of now.
Structured as a REIT, Weyerhaeuser is one of the world's largest private owners of timberlands, with more than 6 million acres of timberlands primarily in the U.S., and another 14 million acres under management in Canada.
Weyerhaeuser is also one of the largest manufacturers of wood and cellulose fibers products. They also develop real estate, primarily as a builder of single-family homes.
The company has been focused on improving its capital structure with strong liquidity and reduced interest expenses. Further with housing recovery underway, continued operational excellence and excellent cost management, WY is positioned for strong revenue growth and is expected to grow its dividend over time.
On April 11, 2013, Weyerhaeuser announced its quarterly dividend of $0.20 per share, up 18% from earlier quarterly dividend of $0.17 per share. The company has grown its dividend by more than since declaring its initial dividend as a REIT.
As a result of improving outlook for the company, analysts have been revising their estimates for March 2013 quarter and the fiscal year 2013. Zacks consensus estimates for the current quarter and the current year now stand at $0.22 and $1.08 per share, respectively up from $0.19 and $0.97 per share, 60 days ago.
The company will report it first quarter earnings on April 26, 2013.
Gold miners have had a rough ride in the recent past as gold prices plunged. In fact, gold miners have been more hit by the precious metal’s slide.
Further, sharp downward estimates revisions have resulted in a cloudy near-term outlook for this Zacks Rank #5 (Strong Sell) stock.
Randgold Resources (GOLD) is an African focused gold mining and exploration company, with its stock listed on the NASDAQ and the London stock exchange.
Due to disappointing outlook, quarterly and annual estimates have been revised sharply downwards in recent weeks.
Zacks consensus estimate for the current quarter now stands at $1.06 per share versus $1.61 per share, 60 days ago, while the full-year consensus estimate is $5.24 per share now, down from $6.10 per share.
While gold has rebounded slightly from its lowest level in recent months, gold miners still seem to be struggling. GOLD is down about 28% year-to-date, while Gold ETF (GLD) is down 15% year-to-date.
Gold equities have actually been underperforming the bullion, for the last more than 10 years and more so, since 2010. I do not expect this trend to reverse anytime soon with rising costs and increased production issues.
Last week, home and auto insurer Allstate Corp. (ALL) announced its pre-tax catastrophe (CAT) and net of reinsurance loss estimate to jump to $198 million for Mar 2013. This takes the total CAT loss estimate for the first quarter to $391 million, occurring from 9 events.
However, the total estimate for the quarter was partly negated by favorable reserve re-estimates of CAT losses in the prior years, bringing the net pre-tax CAT loss to $359 million. This is higher than $259 million incurred in the year-ago quarter.
After tax, Allstate is expected to incur CAT losses worth $129 million in Mar 2013 and $233 million in the first quarter of 2013. The company is slated to release its first quarter results after the closing bell on May 1, 2013.
Help from the Bond Market
As CAT losses have become a regular phenomenon with uncertain extent of damages, Allstate now seeks to manage its exposure to such losses by investing collateral into bonds primarily created for natural disasters. While these funds carry high interest rates, they also have the risk of losing capital if a natural catastrophe occurs.
However, Allstate is investing into CAT bond collateral securities, which are rated “AAA” by Standard & Poor’s Investor Ratings Service (S&P). The last bond, Willow Re 2008, that the company had invested in 2007 had matured in 2011. Post that, Allstate has now put in its collateral into money market funds through a special purpose reinsurer – Sanders Re Ltd.
Subsequently, Allstate intends to buy $100 million of Class A bonds (rated “BB+” by S&P) and $150 million of Class B (rated “BB”) securities from Sanders. These securities are due to mature in 4 years and will cover losses related to hurricanes from Alabama to New York along with the earthquake in California.
Such CAT bonds were very popular in 2007 but the collapse of Lehman Brothers led to significant losses for the bond investors. While many insurers are now indulging into such CAT bonds, these securities have been trading at an all-time low. Nevertheless, the returns are higher than any alternative mode of protection. Moreover, market estimates CAT bond sales of about $7 billion by the end of 2013, at par with 2007-level.
Overall, as the CAT bonds provide insurance coverage to Allstate, we remain at the edge to analyse the future developments and traction in this market. Allstate carries a Zacks Rank #2 (Buy), other outperformers in the insurance sector include PartnerRe Ltd. (PRE) and Montpelier Re Ltd. (MRH), which carry a Zacks Rank #1 (Strong Buy).
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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