FORT LAUDERDALE, Fla. (TheStreet) -- Who in his right mind would buy the shares of an insurance-holding company that does business in Florida, Georgia and the Carolinas?
Huge hurricanes and other destructive storms lead to huge -- and random -- payouts, after all.
Universal Insurance Holdings
, a Fort-Lauderdale, Fla.-based insurer, is massively profitable and stable. Over two years, when the
S&P 500 Index
fell 27%, Universal Insurance soared 86%.
The stock is priced to yield 9.7% on its dividend, which has increased despite the downturn, suggesting the company is keen on maintaining its hefty payout ratio.
Universal Insurance is attractive compared with its property and casualty competitors. It has a price-to-earnings ratio of 22.4 versus the industry's average of 28.7, and its price-to-sales ratio is a minuscule 0.92 versus the industry's 20.14.
In the most recent quarterly filing, the company reiterated its plan to expand in Massachusetts, New Jersey, Maryland, New York and Virginia, generating new revenue and diversifying risk. A focus on growth and stability is a good mark for management.
Universal Insurance's profit margin in the trailing 12 months came in at a strong 14.1%, while return on equity was a beefy 26.8%. The company relies on debt financing, seen in the debt-to-equity ratio of 4.98 versus 4.36 in 2008. However, the company has a cash balance of $192.9 million and a quick ratio of 1.98, so the heavy debt load appears to be manageable.
With about a 50/50 split in investments between equity and fixed income, management has taken a conservative approach to portfolio management. Policy holders and investors should be happy about that, given the gyrations in the stock market over the past week. Universal Insurance will likely avoid any potential liquidity problems by staying conservative in its investing operations for the time being.
has Universal Insurance rated as a "buy" with a grade of B-minus.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.