Why National Interstate Shares Were Run Off the Road
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 National Interstate have plunged by 17% today after the company fell to an unexpected quarterly loss for the day.
So what: The commercial transport insurer reported a loss of $0.32 per share for the second quarter, which was far below the consensus expectation of a $0.41 profit per share, and also far below the year-ago quarter's $0.37-per-share profit. A Bloomberg report pins the shortfall on inadequate reserves for claims made in earlier periods, which resulted in $1.14 in spending on claims and expenses for every dollar of premiums earned in the second quarter. Three large claims were singled out in particular as reasons for the shortfall, resulting in a "unique situation" for the company, according to CEO Dave Michelson.
Now what: National Interstate had been in a steady five-year growth period before this unfortunate quarter, and even after the drop it still sports a five-year gain in excess of 50%. The company's 16 P/E, however, is still a bit higher than the industry average, although it's hardly in nosebleed territory. The unexpected catastrophes didn't destroy National Interstate, so unless there's another chain of catastrophes in its near future, today's drop might be a great opportunity for you to dig a little deeper into a potential long-term investment.
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