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business newsXL Group Among Insurers Impacted by Japanese Earthquake
By
Justin Sharon
Mar 11, 2011 4:50 pm
PartnerRe and ACE Limited are among other entities that could be adversely impacted by today's tragedy.
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The ultimate impact is by definition unclear at this early stage, but based on initial reports Tokyo was spared the worst of the damage from the quake and the subsequent tsunami epicentered 231 miles away off the coast of Sendai. As a point of comparison, the 1995 Kobe and fire quake cost the insurance industry about $2 billion. (Sendai is Japan’s 12th largest city with a 1 million population, smaller than Kobe although today’s incident was considerably higher up the Richter scale than 16 years ago.) Ironically, given the topography, earthquake insurance is not popularly purchased in Japan, with perhaps only 5% of the population doing so. Insured losses, as in Kobe, are anticipated to be considerably less than overall economic losses.
Turning to specific stocks, Dublin based XL Group plc (XL), which writes property catastrophe reinsurance, is among those with the heaviest exposure, as evidenced by its precipitous plunge early this morning. (Shares subsequently recovered strongly, though they did still finish off 0.09%.) By an odd quirk of fate, earlier today, but prior to the quake, XL was added to FBR Capital’s list of “Top Picks.” The investment outfit sees upside potential due to excess capital of around $4.7 billion and the opportunity for accretive stock repurchase. PartnerRe (PRE) and ACE Limited (ACE) are among other entities that could be adversely impacted by today’s tragedy. XL Capital just reported preliminary loss estimates for the recent New Zealand earthquake of up to $85 million, and in light of this and other events in Asia lately, prices for Japanese catastrophe contracts are likely to increase substantially when seasonal reinsurance renewals occur on April 1.
Please see Analyzing Currencies as Japan’s Earthquake, Tsunami Hit Markets, Tsunami in Japan: Will Country Sell US Treasuries to Cover Losses?, and MV Weather Report: Springtime for Insurance Firms, Finally.
Firearms are never far from the news in this nation but, on a day the Secret Service released a 30-year-old audiotape of Ronald Reagan’s attempted assassination and we got an update on the condition of Gabrielle Giffords, they seem particularly prominent at the moment. It is especially eerie then that our headline downgrade involved Smith & Wesson (SWHC). Stock in the gun maker, cut to Neutral from Buy at Merriman this morning, tumbled 10.03% to take it further into the red over the past 52 weeks following an earnings miss.
For the fiscal third quarter it lost $52.8 million or $0.88 per share compared with a year-earlier profit of $3.1 million, or $0.05 on an EPS basis. It also reported a 2% reduction in revenue, to $89.3 million. While the core firearms segment brought in $79.2 million, up from $74.7 million 12 months ago, perimeter security sales plunged 38% to $10.1 million. Average analyst estimates called for a net loss of only $0.01 per share on revenue of $96.6 million, and investors are also reacting negatively to news of lower guidance. Smith & Wesson now expects to make in a range of $389 million to $393 million for all of fiscal 2011, short of the $410 million that consensus was expecting. Company CEO Michael Golden admitted “lower corporate spending and governmental budgetary constraints” hurt performance.
The firm, founded in 1852, really took off in the Civil War -- the celebrated Union cavalry general and Indian fighter George Armstrong Custer owned a pair of its popular No. 2 revolvers. Was today the company’s last stand? Not quite, but it can’t afford to keep shooting itself in the foot with such results.
Wrap your arms around an Excerpt From “Traders, Guns & Money” (Part 1), Will Smith & Wesson Make Your Day?, and Ticker Shock: Could Smith & Wesson’s Stock Blow You Away?
If there’s anything more American than the right to bear arms it’s the bull market in peanut butter and jelly, sticky fingers and all. After all, no less an icon of ours, Elvis loved nothing more than to have a hollowed-out loaf of bread stuffed with an entire jar of Skippy peanut butter and a whole jar of Smucker’s grape jelly. As for peanuts themselves, they tend to be quite quiet -- although alas one former farmer of the product can’t seem to keep his mouth shut ever since leaving the White House with approval ratings in the cellar. Mr. Planter for instance only talked for the first time late last year after almost a century of silence. (Let’s hope Charlie Sheen is listening, for he is after all far more of a nut than this lovable legume will ever be.) They do have plenty to shout about at the moment. Not only is March National Peanut Month, but to celebrate, The J. M. Smucker Company (SJM) hit the highest level in its history today.
Shares of the food products powerhouse, whose other brands include Jif and Folgers, ended up another 1.64%. While commodity costs are a concern in common with others in its industry, Smucker has done a better job than most in making price hikes stick. It recently reported a 10% increase in third-quarter revenue, thanks in no small measure to an 18% jump in its US coffee business, where it has raised prices three times in the past 12 months alone. It continues to generate good cash flow and although increased promotional spending always looms large as a risk, the foreseeable future looks bright. When you're in a jam, turn to jelly.
The Best Part of Waking Up, The Future of Food Prices: Coffee, and Business Makeover: Name Brands offer additional insight.
From nuts to bananas. The deliciously named Ida Valentine won’t be sending a love letter to the dollar store any time soon, but today the subject of her lawsuit (which will hopefully fail on a peel) can certainly afford the $44,000 plus she is demanding after slipping outside one of their locations. Paying $1.34 billion for 99 Cents Only (NDN) may sound crazy to many but the market clearly sees some method to the madness. Shares of the discount retail outfit surged 17.33% to top all NYSE advancers after one Mr. Green was prepared to pay much more than a red cent for the 46-year-old California company.
Specifically, Leonard Green & Partners, L.P., who in tandem with members of the Schiffer/Gold family have proposed acquiring the outfit in a “going-private” non-binding offer for $19.09 per share in cash. Such an offer implies a 14.5% premium over yesterday’s closing price and an Enterprise Value/EBITDA multiple of 7.3 times. The Schiffer/Gold family is already the single biggest shareholder, owning about 33% of all existing equity. Shares will obviously now no longer be trading on fundamentals, but the dollar stores have performed well during the economic downturn as more customers go bargain hunting.
Wedbush Securities analyst Joan Storms, who is Neutral on the name with a $20 target, wrote in a note she regards today’s gambit as a slightly low ball bid, one which leaves open the potential for a higher offer.
We’ll round down to the nearest penny if you read Stretching Family Dollar, The Dollar Stores That Deserve Your Bucks, and Video: Walmart Plays Catch Up to Dollar Stores.
No positions in stocks mentioned.
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