Compass Point Remains Neutral on Mercury General (MCY) Following 1Q Earnings Report

Compass Point reiterated a Neutral rating on Mercury General (NYSE: MCY), and raised the price target to $55.00 (from $50.00), following the company's 1Q earnings report. MCY reported operating EPS of $0.13 versus the consensus of $0.67. The company announced its quarterly dividend of $0.62, which is in line with prior quarters. The dividend payout ratio has exceeded 100% in three of the past four years and underwriting leverage has increased from 1.7x to over 2.1x.

Analyst Ken Billingsley commented, "Maintain Neutral and raising our price target to $55 from $50 as we roll our valuation to 2017. MCY investors continue to benefit from the company’s large dividend, and more importantly the company’s desire to continue paying that dividend. The dividend payout ratio has exceeded 100% in three of the past four years and underwriting leverage has increased from 1.7x to over 2.1x. Management may be comfortable with going as high as 2.5x, but reserve charges and CAT losses will have to subside, or be offset by sustainable rate increases to keep from going over that mark. MCY remains attractive because of it high dividend but underwriting improvement will need to be observed in the next year or we believe the shares could suffer from multiple contraction. Recent rate actions should help to reduce overall loss ratios and with the bulk of the company’s policies written on a 6-month basis, we could see real improvement in underwriting in early 2017."

For an analyst ratings summary and ratings history on Mercury General click here. For more ratings news on Mercury General click here.

Shares of Mercury General closed at $52.80 yesterday.

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