Is this Insurer Ready to Break its Ceiling?
Kevin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Safety Insurance Group (NASDAQ: SAFT) is a Massachusetts based insurance provider that offers a portfolio of casualty, property and automobile policies. SAFT has a market cap of $688 million, a current P/E of over 14 and recent yields of over 5%. Safety Insurance announced a Q2 dividend of $.50 a share after reporting $17 million net income as compared to the $4.1 million net for Q2 of 2011.
Analysis of the past four years of performance proves the current stock valuation to be at the peak of past achievements. SAFT has fluctuated between $40.92 and $44.76 over the last 30 days with a general upward trend. Over the last year and a half the changes in value have ranged from -3.94% to +12.66%. Over the last four years the stock price has seen quarterly changes ranging from -18.34% to two straight quarters with a gain of over 13.5%.
Looking at the yearly performance of the recent past also shows an up and down performance with changes of -4.81%, +31.71%, -15.17% and +11.07%. Through all of this up and down of valuation the price has stayed between $30.33 and $48.63. That makes the current price of $44.96 close to the top end of the range.
SAFT has a diverse range of insurance products, a large cap and praise for the current state of most aspects that an investor would use for decision making. Some analysts are down on the technical signs, yet are still rating SAFT a strong buy.
The directors approved an increase in the dividend from $.50 a share to $.60 payable of September 14, 2012 for the period ending September 4. Premiums written by Safety increased by over 7% for the most recent quarter and the past six months as compared to the previous year. The only blemish here would by a decrease by more than half of favorable development from the previous year’s comparable quarters.
Competition amounts to 32 companies including 3 of the majors. Geico (wholly owned by Berkshire Hathaway (NYSE: BRK-A), Progressive (NYSE: PGR) and Allstate (NYSE: ALL) were allowed into Massachusetts after a change in law began in April of 2008. The concern that the introduction of national insurers would destroy smaller local companies proved to be unfounded. In the four years since the big insurance companies moved in, the amount of private passenger insurance policies written by independent agents like SAFT have only dropped from 77% to 72%. This is hardly the destruction analysts feared.
While I typically prefer stocks on the rebound that are at or near their 52-week low, SAFT still has great potential. Yes, the valuation is near its 52-week high and the ceiling for the valuation has been around $49, but growth in business continues, no one in the stock industry has countered the company-stated outlook and nearly all of the Fools with an opinion on SAFT like what they see.
This may not be the best move for a short as double-digit increases have happened in the past even going as high as 31% in a year, but the stocks’ glass ceiling needs to be broken for that type of opportunity to occur. It’s not out of the question that SAFT will make a jump in Q3, but it would require bucking the historical trend for the stock. Something besides steady performance and growth may need to happen in order to excite investors and create a short opportunity.
SAFT has real potential for the long play since it is growing, is well-run and manages to recover lost ground quickly. Every increase in stock price happens for more than one quarter before a drop. The recent 10% increase came after a 2.4% drop the previous quarter. All that combined with a solid yield for the foreseeable future make this stock a relatively safe place to dig in and hold. After staying in the $30 range for two years the price broke through and stayed in the $40 range for a few years. A continuation of this trend will mean double-digit increases in price, especially if SAFT finally breaks into the $50 range.
thedeswolf has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Safety Insurance Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.If you have questions about this post or the Fool’s blog network, click here for information.