March 14, 2007

Berkley Set to Outperform

From Zacks:

With a pullback in share price due partly to an overall downturn in the market, W.R. Berkley (BER) represents a good buying opportunity. We checked the latest Buy report issued by Zacks senior insurance analyst Eric Rothmann for some details:

“Results for 4Q06 were basically in line with expectations. W.R. Berkley continues to enjoy a broadening of premiums, underwriting profits and investment income. Consequently, the company is positioned to continue generating an above 20% ROE [return on equity]. While the shares trade at a significant premium valuation to its peer group, we think this premium is warranted and reflects Berkley’s substantially superior historical and projected ROE. In turn, we think the stock can outperform the group with less downside risk.

“We adjusted our 2007 earnings expectation and installed our 2008 earnings expectation to reflect 4Q06 results. At the current price level, the shares of W.R. Berkley trade at 1.87x its 4Q06 book value of $17.30 per share, well at the upper-end of its 10-year historical 0.9x to 2.1x range and a substantial premium to its peer group, although the multiple has contracted from 2.85x about a year ago and the 2.30 2.40x range of late. On a forward price/earnings basis, the company is also trading at a premium to its peer group. We believe the shares deserve to trade at a premium given the company’s superior and relatively consistent ROE.”

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