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3 Favorite Post-Sandy Insurance Plays: Merrill Lynch

Stocks in this article: ALL XL ACE AXS

2. Axis Capital Holdings

Shares of Axis Capital Holdings, Ltd. (AXS) of Pembroke, Bermuda, closed at $35.80 Monday, returning 14% year-to-date.

The shares trade for 0.8 times their reported Sept. 30 diluted book value of $43.57, and for nine times the consensus 2013 EPS estimate of $3.94. The consensus 2014 EPS estimate is four dollars.

Based on a quarterly payout of 24 cents, the shares have a dividend yield of 2.68%.

Cohen said that "after a catastrophe-mired 2012, AXIS reported sold results" during the first nine months of 2012. For that period, the company reported net income of $513.6 million, or $4.11 a share, improving from a loss of $70.6 million, or 58 cents a share, during the first three quarters of 2011.

The company's underwriting income totaled $337.4 million during the first three quarters of 2012, increasing compared to an underwriting loss of $342.3 million a year earlier. The combined ratio improved to 90.8% during the first three quarters of 2012, from 116.3% a year earlier. A combined ratio of over 100% indicates an underwriting loss.

Cohen's price target for AXIS Capital is $44, which is "0.9x the estimated year-ahead book value, a multiple that reflects an ROE that should remain under pressure." The analyst called Axis a "longer-term opportunity," and said that "a reduced earnings drag from the new accident and health business along with more consistent earnings should be the catalysts for appreciation."

Cohen said that "we assume a small loss in the fourth quarter due to Sandy, but unless the loss is outsized in nature and larger than we expect, we believe that the storm is fully factored into the stock price."

The analyst estimates that Axis Capital's adjusted tangible book value will increase from $43.86 at the end of this year, to $47.47 at the end of 2013.

AXS Chart AXS data by YCharts

Interested in more on Axis Capital Holdings? See TheStreet Ratings' report card for this stock.

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