Limited ACE (NYSE: ACE)
Current Date: 9/6/2011 Current Price: $61.43 12 mo. PT: $80.73
HIGHLIGHTS FROM 2Q 2011 EARNINGS RELEASE EPS was $2.01 ahead of consensus ($1.65) primarily due to lower catastrophe losses and higher investment income Top-line grew 15% YoY as ACE benefitted from improving organic growth plus previous M&A BV grew 3% sequentially to $71.36 and the ROE of 11%+ is among the highest in 2Q 2011 for the P&C industry FORWARD LOOKING VIEW Recent acquisitions such as the HK and Korea operations of NY Life and Jerneh Insurance in Malaysia gives ACE a unique competitive advantage in the global insurance marketplace Pursuing non cyclical insurance sectors (such as crop insurance) that are not correlated with existing P&C lines provides unparalleled strategic depth High levels of excess capital ($6.5bn+ or 27% of equity) accords the company exceptional risk cushioning against catastrophic risks The fact that 2011 guidance raised was to $6.00-$6.20 from $5.40-$5.70 indicates a bullish view from management regarding future growth INVESTMENT RISKS Low interest rates offer headwinds to NII across the industry Along with other P&C insurance providers, ACE is vulnerable to extreme catastrophes that threaten to crimp margins CONCLUSION Considering that the stock currently trades at 87% of BV, this would be an excellent addition to the TOF portfolio Based on analysis using DCF, a reasonable 12-month price target for ACE is $80.73. Pallav Ray The Tepper Opportunity Fund Carnegie Mellon University
VALUATION RATIOS
P/E (TTM): 8.36 Beta: 0.69 P/S (TTM): 1.29 P/B (MRQ): 0.87
FINANCIAL STRENGTH
LT Debt to Equity: 13.93 Total Debt to Equity: 19.74 Interest Coverage: 21.57
PROFITABILITY RATIOS
EBITD Margin (TTM): 34.84 Op. Margin (TTM): 18.46 Pre-Tax Margin (TTM): 18.67 Net Profit M'gin (TTM): 15.54
MGMT. EFFECTIVENESS
ROA (TTM): 3.00 ROE (TTM): 11.17 Source: Reuters