Meadowbrook Insurance Group Shares Plunged: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of property and casualty insurer Meadowbrook Insurance Group (NYS: MIG) are nosediving 14% today following an update of the company's fourth-quarter and 2012 guidance.
So what: The company, which primarily specializes in underwriting workers compensation, automotive, property, and marine policies for commercial customers, noted today that it would be taking a $7.7 million pre-tax expense to strengthen its loss reserves. This writedown is expected to impact fourth-quarter earnings by $0.10. The company blamed the need for higher loss reserves on its automotive and workers compensation segments. Meadowbrook also cautioned that business could be challenging in 2012 and guided EPS in the range of $0.90 to $1.00 for the year compared to current Wall Street estimates of $1.10.
Now what: This is actually the second quarter in a row that Meadowbrook has cautioned investors, so I'm starting to get a bit worried. Then again, this is a company that I described nearly three months ago as the "small-cap Rock of Gibraltar" of the P&C sector. Meadowbrook's estimated combined ratio of 97.5%-98.5% could be better, but with the insurer once again trading below book and for approximately 10 times forward earnings, I feel it once again makes for a compelling buy. This is the reason I am maintaining my CAPScall of outperform on the company.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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