Prepared by Arsuron Papartassee
American National Insurance Co. (ANAT) operates primarily in the insurance industry. The industry sub-segment is the life insurance, annuities, and property & casualty. ANAT competes with companies such as Prudential (PRU) & American Financial Group Inc. (AFG).
The valuation between these companies can be compared to get a better sense of where they stand in pricing. While AFG is currently trading (as of 4/4/08) at book value of $26 and PRU trading 1.5x book value, ANAT is trading at $105 which is well below book value of $140 this leads me to believe there is an upside of at least 26%.
The price to earning ratio for ANAT is 10 while PRU & AFG are 10.77 & 8.55 respectively.
With such small differences in the P/E ratio, I consider the book value the most significant factor as a reason I'd say ANAT is rather “cheaper” than the rest. One thing to consider is whether that book value is valid or not as we have seen in the recent weeks that book value as it relates to financial sector stocks can’t be regarded as absolute.
ANAT has a short ratio of 0.13% of its share outstanding, which leads me to believe that the short sellers have gotten out of this stock indicating a bottom in the stock's price.
One of the most interesting things I found during this research was that ANAT has a lot of investment tied to the real estate market, but it has no direct exposure to sub-prime mortgage. Needless to say, some of its investments bought/sold may contain at risk assets. Further, its 2006 income grew heavily due to the fact that it had disposed of real estate and mortgage loan payoffs during the peak of the mortgage crisis.
Here are additional highlights of the company:
- Profit margin 9%
- Operating margin 13.7%
- Debt / Equity ratio of 3.5%
- ROE of 8.25% (This figure to me is more important than ROA as insurance industry is not capital intensive)
On the technical side, ANAT is in an intermediate down trend. The resistance is at the $100 range so I would wait for a pull back to that price. The stock however broke out on 4/1/08 with heavy volume indicating some institutional buying pushing it above its previous range. This could be the sign of a turn around.
Some of the things to look out for are ANAT's investment vehicles and its ties to the housing industry. The insurance industry is a cash cow, but it is a maturing market so the growth factor isn’t going to be as big as other industries, however the fact remains that ANAT is rather small (PRU is 12x bigger in revenue)and it has room to grow market share.
In summary, ANAT appears to be undervalued and mispriced by the metrics I have mentioned above. However, any investments must be taken cautiously considering the potential housing industry impact.
Links
http://biz.yahoo.com/prnews/080218/lam051.html?.v=101
http://finance.yahoo.com/q/ks?s=ANAT
Prepared by Arsuron Papartassee
Disclosure: I do not own shares of ANAT
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