Amtrust Financial Services, Inc. (NASDAQ:AFSI)

CAPS Rating: 4 out of 5

The Company, through its subsidiaries, provides property and casualty insurance focusing on workers' compensation for small business, specialty risk and extended warranty coverage, and specialty middle-market property and casualty coverages.

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Player Avatar KCinAustria (< 20) Submitted: 5/29/2011 10:15:58 AM : Outperform Start Price: $21.15 AFSI Score: +57.26

Top Reasons Why I Bought AmTrust Financial Services (AFSI) Last Week:1) Solid Growth (Revenue/Owner Earnings) since 20032) The CEO owns 9.9% of the company3) The ROE has been stable around 20% since 20054) Profit margins have been stable (around 12-16%) since 20055) They pay a dividend; it's small but increasing (since at least 2006), and is still a small, stable fraction (~15%) of owner earnings6) The price is right: At 146M in owner earnings (2010), based on a 8% discount rate, the intrinsic value of the company is 1.8B; It's current market cap is roughly 1.3B right now. If you assume just 3% growth in owner earnings (forever), it's valuation would be 2.8B. For the last 5+ years, this company has significantly higher growth in owner earnings7) It's an easy to understand business (workers comp insurance, etc.), it actually makes money on it's insurance business (premiums larger than payout ratio and expense ratio combined...don't remember the exact %, but seemed quite reasonable for a number of years), it's not capital intensive, and the long term prospects seem reasonable. (I doubt workers comp insurance, or insurance in general, is going away in the next 5, 10, 20, or 50 years.)Slight concerns I have:1) The balance sheet looks fine, but not amazing. (For comparison, RLI looks a bit healthier to me.)Note: I calculate growth and ROE based on 'Owner Earnings' which I calculate as OE = Earnings + Depreciation - Capital Expenses.FULL DISCLOSURE:I own shares of AFSI and RLI.

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